-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UkMUbUD4QakS01bza32v8DHCkKN5hv76GsmFPmEWaaEefTc/6AjFdvhutr79BfX3 qW6rnGcBUAOANVi2D+W7bQ== 0001021408-02-011700.txt : 20020910 0001021408-02-011700.hdr.sgml : 20020910 20020910162137 ACCESSION NUMBER: 0001021408-02-011700 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20020910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUNDS TRUST CENTRAL INDEX KEY: 0001097519 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09645 FILM NUMBER: 02760809 BUSINESS ADDRESS: STREET 1: ONE BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003217854 MAIL ADDRESS: STREET 1: ONE BANKOF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUNDS TRUST CENTRAL INDEX KEY: 0001097519 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-89661 FILM NUMBER: 02760810 BUSINESS ADDRESS: STREET 1: ONE BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003217854 MAIL ADDRESS: STREET 1: ONE BANKOF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 485APOS 1 d485apos.txt NATIONS FUNDS TRUST As filed with the Securities and Exchange Commission on September 10, 2002 Registration No. 333-89661; 811-09645 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM N-1A* REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] Post-Effective Amendment No. 27 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Amendment No. 28 [X] (Check appropriate box or boxes) ----------------------- NATIONS FUNDS TRUST (Exact Name of Registrant as specified in Charter) 111 Center Street Little Rock, Arkansas 72201 (Address of Principal Executive Offices, including Zip Code) -------------------------- Registrant's Telephone Number, including Area Code: (800) 321-7854 Richard H. Blank, Jr. c/o Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 (Name and Address of Agent for Service) With copies to: Robert M. Kurucza, Esq. Carl Frischling, Esq. Marco E. Adelfio, Esq. Kramer Levin Naftalis Morrison & Foerster LLP & Frankel 2000 Pennsylvania Ave., N.W. 919 3rd Avenue Suite 5500 New York, New York 10022 Washington, D.C. 20006 It is proposed that this filing will become effective (check appropriate box): [_] Immediately upon filing pursuant [_] on July 10, 2002 pursuant to Rule 485(b), or to Rule 485(b), or [_] 60 days after filing pursuant [_] on (May 10, 2002) pursuant to Rule 485(a), or to Rule 485(a). [X] 75 days after filing pursuant to [_] on (date) pursuant to paragraph (a)(2)* paragraph(a)(2) of Rule 485 If appropriate, check the following box: [_] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. EXPLANATORY NOTE The Registrant is filing this Post-Effective Amendment No. 27 to the Registration Statement of Nations Funds Trust (the "Trust") in order to register Nations SmallCap Core Fund. NATIONS FUNDS TRUST CROSS REFERENCE SHEET
Part A Item No. Prospectus - -------- ---------- 1. Front and Back Cover Pages ....................... Front and Back Cover Pages 2. Risk/Return Summary: Investments, Risks and Performance ...................................... About this Prospectus 3. Risk/Return Summary: Fee Tables .................. About the Funds; Financial Highlights 4. Investment Objectives, Principal Investment Strategies, and Related Risks .................... About the Funds; Other Important Information 5. Management's Discussion of Fund Performance ...... About the Funds 6. Management, Organization, and Capital Structure ........................................ What's Inside; About the Funds; How the Funds Are Managed; About your Investment 7. Shareholder Information .......................... About the Funds; About your Investment 8. Distribution Arrangements ........................ Information for Investors 9. Financial Highlights Information ................. Financial Highlights; About the Funds Part B Item No. - -------- 10. Cover Page and Table of Contents ................. Cover Page and Table of Contents 11. Fund History ..................................... Introduction
12. Description of the Fund and Its Investments and Risks ............................................ Additional Information on Portfolio Investments 13. Management of the Funds .......................... Trustees And Officers; Investment Advisory, Administration, Custody Transfer Agency, Shareholder Servicing and Distribution Agreements 14. Control Persons and Principal Holders of Securities ....................................... Not Applicable 15. Investment Advisory and Other Services ........... Investment Advisory, Administration, Custody, Transfer Agency, Shareholder Servicing And Distribution Agreements 16. Brokerage Allocation and Other Practices ......... Portfolio Transactions and Brokerage--General Brokerage Policy 17. Capital Stock and Other Securities ............... Description Of Shares; Investment Advisory, Administration, Custody, Transfer Custody, Transfer Agency, Shareholder Servicing And Distribution Agreements 18. Purchase, Redemption and Pricing of Shares ....... Net Asset Value -- Purchases And Redemptions; Distributor 19. Taxation of the Fund ............................. Additional Information Concerning Taxes 20. Underwriters ..................................... Investment Advisory, Administration Custody, Transfer Agency Shareholder Servicing And Distribution Agreements; Distributor 21. Calculation of Performance Data .................. Additional Information on Performance 22. Financial Statements ............................. Independent Accountant and Reports
Part C Item No. Other Information - -------- ----------------- Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of this Document
[GRAPHIC] Nations Research Fund Prospectus -- Primary A Shares August 1, 2002 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Not FDIC Insured May Lose Value No Bank Guarantee [LOGO] Nations Funds Nations SmallCap Core Fund Prospectus -- Primary A Shares [ ], 2002 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PRELIMINARY PROSPECTUS DATED September 10, 2002 SUBJECT TO COMPLETION An overview of the Fund - -------------------------------------------------------------------------------- [Graphic] TERMS USED IN THIS PROSPECTUS IN THIS PROSPECTUS, we, us AND our REFER TO THE NATIONS FUNDS FAMILY (NATIONS FUNDS OR NATIONS FUNDS FAMILY). SOME OTHER IMPORTANT TERMS WE'VE USED MAY BE NEW TO YOU. THESE ARE PRINTED IN italics WHERE THEY FIRST APPEAR IN A SECTION AND ARE DESCRIBED IN Terms used in this prospectus. [Graphic] YOU'LL FIND Terms used in this prospectus ON PAGE 18. YOUR INVESTMENT IN THIS FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY BANK OF AMERICA, N.A. (BANK OF AMERICA), THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENT AGENCY. YOUR INVESTMENT MAY LOSE MONEY. AFFILIATES OF BANK OF AMERICA ARE PAID FOR THE SERVICES THEY PROVIDE TO THE FUND. This booklet, which is called a prospectus, tells you about one Nations Funds Stock Fund -- Nations SmallCap Core Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUND Nations SmallCap Core Fund invests primarily in equity securities of U.S. companies. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. There's always a risk that you'll lose money or you may not earn as much as you expect. IS THIS FUND RIGHT FOR YOU? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations SmallCap Core Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. FOR MORE INFORMATION If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [Graphic] BANC OF AMERICA ADVISORS, LLC BANC OF AMERICA ADVISORS, LLC (BA ADVISORS) IS THE INVESTMENT ADVISER TO THE FUND. BA ADVISORS IS RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE INVESTMENT MANAGEMENT OF THE FUND. BA ADVISORS AND NATIONS FUNDS HAVE ENGAGED A SUB-ADVISER -- BANC OF AMERICA CAPITAL MANAGEMENT, LLC (BACAP), WHICH IS RESPONSIBLE FOR THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BA ADVISORS AND BACAP STARTING ON PAGE 10. [Graphic] About the Fund NATIONS SMALLCAP CORE FUND 4 Sub-adviser: BACAP - ---------------------------------------------------- OTHER IMPORTANT INFORMATION 8 - ---------------------------------------------------- HOW THE FUND IS MANAGED 10
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 12 Distributions and taxes 16 ----------------------------------------------------- TERMS USED IN THIS PROSPECTUS 18 ----------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S SMALLCAP STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 11. [Graphic] WHY INVEST IN A SMALLCAP CORE FUND? OUR SMALLCAP CORE STRATEGY OFFERS INVESTORS THE POTENTIAL TO ACHIEVE THE HIGHER RETURNS ASSOCIATED WITH INVESTING IN SMALLER COMPANIES, WHILE REDUCING THE VOLATILITY NORMALLY ASSOCIATED WITH NARROW GROWTH OR VALUE MANDATES. NATIONS SMALLCAP CORE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term capital growth by investing in a diversified portfolio of small capitalization securities. [Graphic] PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund will invest at least 80% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 65 to 130 equity securities, including real estate investment trusts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined process based on the fundamental analysis of the overall economy, industry conditions, and the financial situation and management of each company. It generates ideas from: .company meetings/conferences .independent industry analysis .quantitative analysis .Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: .assessing the quality of the company's financial statements and corporate governance .evaluating the company's ability to maintain consistent growth .discussing the business strategy, risks and competitive strengths with company management .validating the company's prospects with external research The team will only invest in a company when its stock price is attractive relative to its forecasted value. The team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss 4 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THE FUND IN Other important information AND IN THE SAI. While the Fund may try to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations SmallCap Core Fund has the following risks: .Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. .Small company risk - Stocks of small companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. .Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. .Real estate investment trust risk - Changes in real estate values or economic downturns can have a significant negative effect on the issuers in the real estate industry. 5 [Graphic] THERE ARE TWO KINDS OF FEES --SHAREHOLDER FEES YOU PAY DIRECTLY, AND ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S ASSETS. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [Graphic] WHAT IT COSTS TO INVEST IN THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none ANNUAL FUND OPERATING EXPENSES (Expenses that are deducted from the Fund's assets) Management fees 0.90% Other expenses/1/ 0.48% ----- Total annual Fund operating expenses 1.38% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 1.30% =====
/1/Other expenses are based on estimates for the current fiscal year. /2/The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 6 [Graphic] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S ACTUAL EXPENSES AND PERFORMANCE. EXAMPLE This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: .you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Primary A Shares $132 $429
7 [Graphic] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: .Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. The principal investment strategies of the Fund may be changed without shareholder approval by giving the amount of notice required by regulatory authorities which is currently 60 days. .Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The analysts can also choose not to invest in specific securities described in this prospectus and in the SAI. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Fund. .Investing defensively - The Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Fund may not achieve its investment objective while it is investing defensively. .Securities lending program - The Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 8 .Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. .Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Fund generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. The annual portfolio turnover rate for Nations SmallCap Core Fund is expected to be no more than [ ]%. 9 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] HOW THE FUND IS MANAGED INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for this Fund until July 31, 2003. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive: ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS
Maximum advisory fee Nations SmallCap Core Fund 0.90%
INVESTMENT SUB-ADVISER Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Fund's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Fund's Board that the Fund: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and Nations Funds have applied for relief from the SEC to permit the Fund to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund will inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 THE FINANCIAL INSTITUTION OR INTERMEDIARY THAT BUYS SHARES FOR YOU IS ALSO REFERRED TO AS A SELLING OR SERVICING AGENT. SELLING AND SERVICING AGENTS INCLUDE BANKS, BROKERAGE FIRMS, MUTUAL FUND DEALERS AND OTHER FINANCIAL INSTITUTIONS, INCLUDING AFFILIATES OF BANK OF AMERICA. [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 BANC OF AMERICA CAPITAL MANAGEMENT, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to Nations SmallCap Core Fund. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. OTHER SERVICE PROVIDERS The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for the services they provide. PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 11 About your investment - -------------------------------------------------------------------------------- [Graphic] WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY "BUYING" THEM BACK FROM YOU. THIS IS CALLED A redemption. [Graphic] Buying, selling and exchanging shares This prospectus offers Primary A Shares of the Fund. Here are some general rules about this class of shares: .Primary A Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they act as a fiduciary, agent or custodian. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other Funds in the Nations Funds Family .The minimum initial investment is $250,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to meet the minimum initial investment amount. Client accounts for which the financial institution or intermediary no longer acts as fiduciary, agent or custodian may no longer be eligible to purchase or hold Primary A Shares. .There is no minimum amount for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary A Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions, or you need help placing an order. 12 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE) IS OPEN. A BUSINESS DAY ENDS AT THE CLOSE OF REGULAR TRADING ON THE NYSE, USUALLY AT 4:00 P.M. EASTERN TIME. IF THE NYSE CLOSES EARLY, THE BUSINESS DAY ENDS AS OF THE TIME THE NYSE CLOSES. THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL HOLIDAYS: NEW YEAR'S DAY, MARTIN LUTHER KING, JR. DAY, PRESIDENTS' DAY, GOOD FRIDAY, MEMORIAL DAY, INDEPENDENCE DAY, LABOR DAY, THANKSGIVING DAY AND CHRISTMAS DAY. [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY THE FUND EVERY BUSINESS DAY. HOW SHARES ARE PRICED All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. VALUING SECURITIES IN THE FUND The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Fund could change on days when Fund shares may not be bought or sold. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Primary A Shares at net asset value per share. .If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. 13 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS PROSPECTUS CAREFULLY. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: .if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [Graphic] EXCHANGING SHARES You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: .You can exchange Primary A Shares of the Fund for Primary A Shares of any other Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Money Market Funds. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 14 .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 15 [Graphic] THE POWER OF COMPOUNDING REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF THE FUND -- WHICH LETS YOU TAKE ADVANTAGE OF THE POTENTIAL FOR COMPOUND GROWTH. PUTTING THE MONEY YOU EARN BACK INTO YOUR INVESTMENT MEANS IT, IN TURN, MAY EARN EVEN MORE MONEY. OVER TIME, THE POWER OF COMPOUNDING HAS THE POTENTIAL TO SIGNIFICANTLY INCREASE THE VALUE OF YOUR INVESTMENT. THERE IS NO ASSURANCE, HOWEVER, THAT YOU'LL EARN MORE MONEY IF YOU REINVEST YOUR DISTRIBUTIONS. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When the Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain, at least once a year. The Fund normally declares and pays distributions of net investment income annually. The Fund may, however, declare and pay distributions of net investment income more frequently. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is paid (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy Fund shares shortly before the Fund makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. 16 [Graphic] THIS INFORMATION IS A SUMMARY OF HOW FEDERAL INCOME TAXES MAY AFFECT YOUR INVESTMENT IN THE FUND. IT IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISER ABOUT YOUR SITUATION, INCLUDING ANY FOREIGN, STATE AND LOCAL TAXES THAT MAY APPLY. [Graphic] FOR MORE INFORMATION ABOUT TAXES, PLEASE SEE THE SAI. HOW TAXES AFFECT YOUR INVESTMENT Distributions of the Fund's ordinary income and net short-term capital gain generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. TAXATION OF REDEMPTIONS AND EXCHANGES Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 17 [Graphic] THIS GLOSSARY INCLUDES EXPLANATIONS OF THE IMPORTANT TERMS THAT MAY BE USED IN THIS PROSPECTUS. SOME OF THE TERMS EXPLAINED MAY APPLY TO NATIONS FUNDS NOT INCLUDED IN THIS PROSPECTUS. [Graphic] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investors Service, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. 18 Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - a widely-used unmanaged index that measures the performance of convertible securities. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity-and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. 19 First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principal place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as S&P or Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 20 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Credit Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term, high quality debt security. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. 21 Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. 22 Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - an unmanaged index comprised of the 1000 largest stocks in the Russell 3000 Index. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 1000 Growth Index - an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 1000 Value Index - an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - an unmanaged index of 2,000 of the smallest stocks representing approximately 11% of the U.S. equity market. The index is weighted by market capitalization, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Growth Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Companies in the Russell 2000 Growth Index tend to exhibit higher price-to-book and price-earnings ratios. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 23 Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 Growth Index tend to exhibit higher price to book and price-earnings ratios. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion: the median market capitalization was approximately 2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P 500/1/ - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400/1/ - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600/1/ - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 24 Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. /1/S&P has not reviewed any stock included in the S&P 500, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 25 SEC file number: Nations Funds Trust, 811-09645 RESRCHPROPA-0802 [Graphic] Where to find more information You'll find more information about Nations SmallCap Core Fund in the following documents: ANNUAL AND SEMI-ANNUAL REPORTS The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [Graphic] STATEMENT OF ADDITIONAL INFORMATION The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. [LOGO] Nations Funds [Graphic] PRELIMINARY PROSPECTUS DATED SEPTEMBER 10, 2002 SUBJECT TO COMPLETION Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Nations SmallCap Core Fund - ---------------------------------------------------------------- Prospectus -- Investor A, B and C Shares [ ], 2002 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE NATIONS FUNDS [LOGO] Nations Funds An overview of the Fund - -------------------------------------------------------------------------------- [Graphic] TERMS USED IN THIS PROSPECTUS IN THIS PROSPECTUS, we, us AND our REFER TO THE NATIONS FUNDS FAMILY (NATIONS FUNDS OR NATIONS FUNDS FAMILY). SOME OTHER IMPORTANT TERMS WE'VE USED MAY BE NEW TO YOU. THESE ARE PRINTED IN italics WHERE THEY FIRST APPEAR IN A SECTION AND ARE DESCRIBED IN Terms used in this prospectus. [Graphic] YOU'LL FIND Terms used in this prospectus ON PAGE 32. YOUR INVESTMENT IN THIS FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY BANK OF AMERICA, N.A. (BANK OF AMERICA), THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENT AGENCY. YOUR INVESTMENT MAY LOSE MONEY. AFFILIATES OF BANK OF AMERICA ARE PAID FOR THE SERVICES THEY PROVIDE TO THE FUND. This booklet, which is called a prospectus, tells you about one Nations Funds Stock Fund -- Nations SmallCap Core Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUND Nations SmallCap Core Fund invests primarily in equity securities of U.S. companies. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. There's always a risk that you'll lose money or you may not earn as much as you expect. IS THIS FUND RIGHT FOR YOU? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations SmallCap Core Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. FOR MORE INFORMATION If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [Graphic] BANC OF AMERICA ADVISORS, LLC BANC OF AMERICA ADVISORS, LLC (BA ADVISORS) IS THE INVESTMENT ADVISER TO THE FUND. BA ADVISORS IS RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE INVESTMENT MANAGEMENT OF THE FUND. BA ADVISORS AND NATIONS FUNDS HAVE ENGAGED A SUB-ADVISER -- BANC OF AMERICA CAPITAL MANAGEMENT, LLC (BACAP), WHICH IS RESPONSIBLE FOR THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BA ADVISORS AND BACAP STARTING ON PAGE 9. [Graphic] ABOUT THE FUND NATIONS SMALLCAP CORE FUND 4 Sub-adviser: BACAP ------------------------------- OTHER IMPORTANT INFORMATION 8 ------------------------------- HOW THE FUND IS MANAGED 10
[Graphic] ABOUT YOUR INVESTMENT INFORMATION FOR INVESTORS Choosing a share class 12 About Investor A Shares 13 Front-end sales charge 13 Contingent deferred sales charge 14 About Investor B Shares 14 Contingent deferred sales charge 14 About Investor C Shares 16 Contingent deferred sales charge 16 When you might not have to pay a sales charge 16 Buying, selling and exchanging shares 20 How orders are processed 22 How selling and servicing agents are paid 28 Distributions and taxes 30 -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 32 -------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S SMALLCAP STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 11. [Graphic] WHY INVEST IN A SMALLCAP CORE FUND? OUR SMALLCAP CORE STRATEGY OFFERS INVESTORS THE POTENTIAL TO ACHIEVE THE HIGHER RETURNS ASSOCIATED WITH INVESTING IN SMALLER COMPANIES, WHILE REDUCING THE VOLATILITY NORMALLY ASSOCIATED WITH NARROW GROWTH OR VALUE MANDATES. NATIONS SMALLCAP CORE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term capital growth by investing in a diversified portfolio of small capitalization securities. [Graphic] PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund will invest at least 80% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 65 to 130 equity securities, including real estate investment trusts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined process based on the fundamental analysis of the overall economy, industry conditions, and the financial situation and management of each company. It generates ideas from: .company meetings/conferences .independent industry analysis .quantitative analysis .Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: .assessing the quality of the company's financial statements and corporate governance .evaluating the company's ability to maintain consistent growth .discussing the business strategy, risks and competitive strengths with company management .validating the company's prospects with external research The team will only invest in a company when its stock price is attractive relative to its forecasted value. The team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss 4 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THE FUND IN Other important information AND IN THE SAI. While the Fund may try to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations SmallCap Core Fund has the following risks: .Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. .Small company risk - Stocks of small companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. .Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. .Real estate investment trust risk - Changes in real estate values or economic downturns can have a significant negative effect on the issuers in the real estate industry. 5 [Graphic] THERE ARE TWO KINDS OF FEES -- SHAREHOLDER FEES YOU PAY DIRECTLY, AND ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S ASSETS. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [Graphic] A LOOK AT THE FUND'S PERFORMANCE Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [Graphic] WHAT IT COSTS TO INVEST IN THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none/1/ 5.00%/2/ 1.00%/3/ ANNUAL FUND OPERATING EXPENSES (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses/4/ 0.48% 0.48% 0.48% ----- ----- ----- Total annual Fund operating expenses 1.63% 2.38% 2.38% Fee waivers and/or reimbursements (0.08)% (0.08)% (0.08)% ------- ------- ------- Total net expenses/5/ 1.55% 2.30% 2.30% ===== ===== =====
/1/A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. /2/This charge decreases over time. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. /3/This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. /4/Other expenses are based on estimates for the current fiscal year. /5/The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 6 [Graphic] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S ACTUAL EXPENSES AND PERFORMANCE. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example assumes: .you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years Investor A Shares $724 $1,053 Investor B Shares $733 $1,035 Investor C Shares $333 $735
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years Investor B Shares $233 $735 Investor C Shares $233 $735
7 [Graphic] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: .Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. The principal investment strategies of the Fund may be changed without shareholder approval by giving the amount of notice required by regulatory authorities which is currently 60 days. .Changing to a feeder fund - Unlike traditional mutual funds which invest in individual securities, a "feeder fund" invests all of its assets in another fund called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Fund. .Investing defensively - The Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Fund may not achieve its investment objective while it is investing defensively. .Securities lending program - The Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. .Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and 8 brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. .Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Fund generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. The annual portfolio turnover rate for the Fund is expected to be no more than [ ]%. 9 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for the Fund until July 31, 2003. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive: ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS
Maximum advisory fee Nations SmallCap Core Fund 0.90%
INVESTMENT SUB-ADVISER Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Fund's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Fund's Board that the Fund: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Fund have applied for relief from the SEC to permit the Fund to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 BANC OF AMERICA CAPITAL MANAGEMENT, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 funds in the Nations Funds Family. BACAP uses a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to Nations SmallCap Core Fund. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. OTHER SERVICE PROVIDERS The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 11 About your investment - -------------------------------------------------------------------------------- [Graphic] WE'VE USED THE TERM, investment professional, TO REFER TO THE PERSON WHO HAS ASSISTED YOU WITH BUYING NATIONS FUNDS. Selling agent OR servicing agent (SOMETIMES REFERRED TO AS A SELLING AGENT) MEANS THE COMPANY THAT EMPLOYS YOUR INVESTMENT PROFESSIONAL. SELLING AND SERVICING AGENTS INCLUDE BANKS, BROKERAGE FIRMS, MUTUAL FUND DEALERS AND OTHER FINANCIAL INSTITUTIONS, INCLUDING AFFILIATES OF BANK OF AMERICA. [Graphic] FOR MORE INFORMATION ABOUT HOW TO CHOOSE A SHARE CLASS, CONTACT YOUR INVESTMENT PROFESSIONAL OR CALL US AT 1.800.321.7854. [Graphic] BEFORE YOU INVEST, PLEASE NOTE THAT, OVER TIME, DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES WILL INCREASE THE COST OF YOUR INVESTMENT, AND MAY COST YOU MORE THAN ANY SALES CHARGES YOU MAY PAY. FOR MORE INFORMATION, SEE How selling and servicing agents are paid. [Graphic] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount you can buy no limit $250,000 no limit Maximum front-end sales charge 5.75% none none Maximum deferred sales charge none/1/ 5.00%/2/ 1.00%/3/ Maximum annual distribution 0.25% distribution 0.75% distribution 0.75% distribution and shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 0.25% service fee 0.25% service fee Conversion feature none yes none
/1/A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. /2/This charge decreases over time. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. /3/This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 12 [Graphic] THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE PLUS ANY SALES CHARGE THAT APPLIES. THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY THE FUND EVERY BUSINESS DAY. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [Graphic] ABOUT INVESTOR A SHARES There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. FRONT-END SALES CHARGE You'll pay a front-end sales charge when you buy Investor A Shares, unless: .you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge -- Front end sales charges .you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0 - $49,999 5.75% 6.10% 5.00% $50,000 - $99,999 4.50% 4.71% 3.75% $100,000 - $249,999 3.50% 3.63% 2.75% $250,000 - $499,999 2.50% 2.56% 2.00% $500,000 - $999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%/1/
/1/1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 13 CONTINGENT DEFERRED SALES CHARGE If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: .If you sell your shares within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the net asset value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [Graphic] ABOUT INVESTOR B SHARES You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. CONTINGENT DEFERRED SALES CHARGE You'll pay a CDSC when you sell your Investor B Shares, unless: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------------ Shares you bought Shares you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
14 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. ABOUT THE CONVERSION FEATURE Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0 - $249,000 nine years $250,000 - $499,999 six years $500,000 - $999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: .We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. .Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. .You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. .Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. .Conversions are free from federal tax. 15 [Graphic] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT REDUCTIONS AND WAIVERS OF SALES CHARGES. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR A REDUCTION OR A WAIVER BEFORE BUYING SHARES. WE CAN CHANGE OR CANCEL THESE TERMS AT ANY TIME. ANY CHANGE OR CANCELLATION APPLIES ONLY TO FUTURE PURCHASES. [Graphic] ABOUT INVESTOR C SHARES There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. CONTINGENT DEFERRED SALES CHARGE You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: .you received the shares from reinvested distributions .you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. WHEN YOU MIGHT NOT HAVE TO PAY A SALES CHARGE FRONT-END SALES CHARGES (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: .Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying in order to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Money Market Funds, don't qualify for rights of accumulation. .Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 16 .Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. .If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. .Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people .banks, trust companies and thrift institutions acting as fiduciaries .individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Fund within 90 days of the date of distribution .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only .registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes .employees or partners of any service provider to the Fund .investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts .shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 17 The following plans can buy Investor A Shares without paying a front-end sales charge: .pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) .employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. CONTINGENT DEFERRED SALES CHARGES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or 18 .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code .payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks .shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size .shares bought through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts .if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund .withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 19 [Graphic] WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY "BUYING" THEM BACK FROM YOU. THIS IS CALLED A redemption. [Graphic] Buying, selling and exchanging shares You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions or you need help placing an order. 20
WAYS TO BUY, SELL OR HOW MUCH YOU CAN BUY, EXCHANGE SELL OR EXCHANGE OTHER THINGS TO KNOW --------------- ----------------------------- ----------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest . $1,000 for regular accounts in Investor A and C Shares. You can invest up . $500 for traditional and to $250,000 in Investor B Shares. Roth IRAs, and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic . $100 quarterly, using automatic transfers from your Investment Plan minimum additional bank account. investment: . $50 - ---------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 We'll deduct any CDSC from the amount you're of your shares by selling and send you or your selling agent the telephone, otherwise there balance, usually within three business days of are no limits to the amount receiving your order. you can sell If you paid for your shares with a check that . other restrictions may wasn't certified, we'll hold the sale proceeds apply to withdrawals from when you sell those shares for at least 15 days retirement plan accounts after the trade date of the purchase, or until the check has cleared. Using our . minimum $25 per Your account balance must be at least $10,000 Automatic withdrawal to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ---------------------------------------------------------------------------------------------------------------------------- Exchanging shares In a lump sum . minimum $1,000 per You can exchange your Investor A Shares for exchange Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our . minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You Exchange can make exchanges monthly or quarterly. Feature
21 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE) IS OPEN. A BUSINESS DAY ENDS AT THE CLOSE OF REGULAR TRADING ON THE NYSE, USUALLY AT 4:00 P.M. EASTERN TIME. IF THE NYSE CLOSES EARLY, THE BUSINESS DAY ENDS AS OF THE TIME THE NYSE CLOSES. THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL HOLIDAYS: NEW YEAR'S DAY, MARTIN LUTHER KING, JR. DAY, PRESIDENTS' DAY, GOOD FRIDAY, MEMORIAL DAY, INDEPENDENCE DAY, LABOR DAY, THANKSGIVING DAY AND CHRISTMAS DAY. HOW SHARES ARE PRICED All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. VALUING SECURITIES IN THE FUND The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Fund. If prices aren't readily available, we'll base the price of a security on its fair value. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Fund could change on days when Fund shares may not be bought or sold. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. .Telephone orders may be difficult to complete during periods of significant economic or market change. 22 [Graphic] THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE PLUS ANY SALES CHARGE THAT APPLIES. THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY THE FUND EVERY BUSINESS DAY. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. MINIMUM INITIAL INVESTMENT The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this MINIMUM ADDITIONAL INVESTMENT You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 23 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. .If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. .If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. .Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 24 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS PROSPECTUS CAREFULLY. We may sell your shares: .if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [Graphic] EXCHANGING SHARES You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 25 .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. EXCHANGING INVESTOR A SHARES You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of the Fund for Investor B Shares of any other Nations Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 26 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of the Fund for Investor C Shares of any other Nations Fund. If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 27 [Graphic] THE FINANCIAL INSTITUTION OR INTERMEDIARY THAT BUYS SHARES FOR YOU IS ALSO SOMETIMES REFERRED TO AS A SELLING AGENT. THE DISTRIBUTION FEE IS OFTEN REFERRED TO AS A "12B-1" FEE BECAUSE IT'S PAID THROUGH A PLAN APPROVED UNDER RULE 12B-1 UNDER THE 1940 ACT. YOUR SELLING AGENT MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. COMMISSIONS Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: .up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares .up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly .up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 28 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 29 [Graphic] THE POWER OF COMPOUNDING REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF THE FUND -- WHICH LETS YOU TAKE ADVANTAGE OF THE POTENTIAL FOR COMPOUND GROWTH. PUTTING THE MONEY YOU EARN BACK INTO YOUR INVESTMENT MEANS IT, IN TURN, MAY EARN EVEN MORE MONEY. OVER TIME, THE POWER OF COMPOUNDING HAS THE POTENTIAL TO SIGNIFICANTLY INCREASE THE VALUE OF YOUR INVESTMENT. THERE IS NO ASSURANCE, HOWEVER, THAT YOU'LL EARN MORE MONEY IF YOU REINVEST YOUR DISTRIBUTIONS. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain, at least once a year. The Fund normally declares and pays distributions of net investment income annually. The Fund may, however, declare and pay distributions of net investment income more frequently. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is paid (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy Fund shares shortly before the Fund makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. 30 [Graphic] THIS INFORMATION IS A SUMMARY OF HOW FEDERAL INCOME TAXES MAY AFFECT YOUR INVESTMENT IN THE FUND. IT IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISER ABOUT YOUR SITUATION, INCLUDING ANY FOREIGN, STATE AND LOCAL TAXES THAT MAY APPLY. [Graphic] FOR MORE INFORMATION ABOUT TAXES, PLEASE SEE THE SAI. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. TAXATION OF REDEMPTIONS AND EXCHANGES Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 31 [Graphic] THIS GLOSSARY INCLUDES EXPLANATIONS OF THE IMPORTANT TERMS THAT MAY BE USED IN THIS PROSPECTUS. SOME OF THE TERMS EXPLAINED MAY APPLY TO NATIONS FUNDS NOT INCLUDED IN THIS PROSPECTUS. [Graphic] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investors Service, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 32 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - a widely-used unmanaged index that measures the performance of convertible securities. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 33 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principal place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as S&P or Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 34 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term, high quality debt security. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 35 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 36 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - an unmanaged index comprised of the 1000 largest stocks in the Russell 3000 Index. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 1000 Growth Index - an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 1000 Value Index - an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - an unmanaged index of 2,000 of the smallest stocks representing approximately 11% of the U.S. equity market. The index is weighted by market capitalization, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 37 Russell 2000 Growth Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Companies in the Russell 2000 Growth Index tend to exhibit higher price-to-book and price-earnings ratios. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 Growth Index tend to exhibit higher price to book and price-earnings ratios. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P 500/1/ - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400/1/ - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 38 S&P SmallCap 600/1/ - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. /1/S&P has not reviewed any stock included in the S&P 500, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 39 SEC file number: Nations Funds Trust, 811-09645 [Graphic] Where to find more information You'll find more information about Nations SmallCap Core Fund in the following documents: ANNUAL AND SEMI-ANNUAL REPORTS The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [Graphic] STATEMENT OF ADDITIONAL INFORMATION The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. [LOGO] Nations Funds Statement of Additional Information Nations Funds Trust Nations SmallCap Core Fund Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares November ___, 2002 This SAI provides information relating to the classes of shares representing interests in the Fund listed above. This information supplements the information contained in the prospectuses for the Fund and is intended to be read in conjunction with the prospectuses. The SAI is not a prospectus for the Fund. See "About the SAI" for information on what the SAI is and how it should be used. Copies of any of the prospectuses may be obtained without charge by writing Nations Funds c/o Stephens Inc., One Bank of America Plaza, 33rd Floor, Charlotte, NC 28255, or by calling Nations Funds at 800-321-7854. The Fund's annual report to shareholders, including the audited financial statements for the Fund, is not yet available because the Fund is a new series with no prior operating history. For ease of use, certain terms or names that are used in this SAI have been shortened or abbreviated. A list of these terms and their corresponding full names or definitions can be found at the end of this SAI in Appendix B. An investor may find it helpful to review the terms and names in Appendix B before reading the SAI. TABLE OF CONTENTS
ABOUT THIS SAI.................................................................................................. 1 HISTORY OF the TRUST............................................................................................ 2 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS........................................................... 2 General.................................................................................................... 2 Investment Policies and Limitations........................................................................ 2 Fundamental Policy Restrictions........................................................................ 2 Non-Fundamental Policy Restrictions.................................................................... 3 Exemptive Orders....................................................................................... 3 Permissible Fund Investments and Investment Techniques..................................................... 4 Asset-Backed Securities................................................................................ 4 Bank Obligations (Domestic and Foreign)................................................................ 5 Borrowings............................................................................................. 6 Common Stock........................................................................................... 6 Convertible Securities................................................................................. 7 Corporate Debt Securities.............................................................................. 8 Derivatives............................................................................................ 8 Dollar Roll Transactions............................................................................... 9 Foreign Securities..................................................................................... 9 Futures and Options.................................................................................... 11 Guaranteed Investment Contracts and Funding Agreements................................................. 14 High Yield/Lower-Rated Debt Securities................................................................. 14 Linked Securities and Structured Products.............................................................. 15 Money Market Instruments............................................................................... 16 Mortgage-Backed Securities............................................................................. 16 Municipal Securities................................................................................... 17 Other Investment Companies............................................................................. 19 Pass Through Securities (Participation Interests and Company Receipts)................................. 20 Preferred Stock........................................................................................ 20 Private Placement Securities and Other Restricted Securities........................................... 21 REITs and Master Limited Partnerships.................................................................. 22 Repurchase Agreements.................................................................................. 23 Reverse Repurchase Agreements.......................................................................... 23 Securities Lending..................................................................................... 23 Short Sales............................................................................................ 24 Stripped Securities.................................................................................... 24 Swap Contracts......................................................................................... 25 U.S. Government Obligations............................................................................ 25 Variable- and Floating-Rate Instruments................................................................ 26 Warrants and Rights.................................................................................... 26 When-Issued Purchases, Delayed Delivery and Forward Commitments........................................ 26 Zero-Coupon, Pay-In-Kind and Step-Coupon Securities.................................................... 27 Other Considerations....................................................................................... 28 Temporary Defensive Purposes........................................................................... 28 Portfolio Turnover..................................................................................... 28 MANAGEMENT OF THE TRUST......................................................................................... 28 The Trustees and Principal Officers........................................................................ 29 Board Committees........................................................................................... 31 Board Compensation......................................................................................... 31 Retirement Plan............................................................................................ 33 Nations Funds Deferred Compensation Plan................................................................... 33 Beneficial Equity Ownership Information.................................................................... 34
i Ownership of Securities of Adviser, Distributor, or Related Entities...................................... 34 Disclosure of Other Transactions Involving Trustees....................................................... 34 Approval of Advisory and Sub-Advisory Agreements.......................................................... 35 Codes of Ethics........................................................................................... 36 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................ 36 INVESTMENT ADVISORY AND OTHER SERVICES......................................................................... 37 Investment Adviser and Sub-Advisers....................................................................... 37 BA Advisors and BACAP................................................................................. 37 Investment Advisory and Sub-Advisory Agreements....................................................... 37 Advisory Fee Rates.................................................................................... 38 Advisory and Sub-Advisory Fees Paid................................................................... 38 Co-Administrators and Sub-Administrator................................................................... 38 Co-Administrators..................................................................................... 38 Sub-Administrator..................................................................................... 39 Co-Administration and Sub-Administration Fees Paid.................................................... 39 12b-1 Plans............................................................................................... 39 Expenses.................................................................................................. 40 Other Service Providers................................................................................... 41 Transfer Agents and Custodian......................................................................... 41 Independent Accountants............................................................................... 41 Counsel............................................................................................... 41 BROKERAGE ALLOCATION AND OTHER PRACTICES....................................................................... 41 General Brokerage Policy, Brokerage Transactions and Broker Selection..................................... 41 Aggregate Brokerage Commissions........................................................................... 44 Brokerage Commissions Paid to Affiliates.................................................................. 44 Directed Brokerage........................................................................................ 44 Securities of Regular Broker/Dealers...................................................................... 44 Monies Paid to Broker/Dealers from the Adviser's or Distributor's Profit.................................. 44 CAPITAL STOCK.................................................................................................. 44 Description of the Trust's Shares......................................................................... 44 About the Trust's Capital Stock........................................................................... 44 PURCHASE, REDEMPTION AND PRICING OF SHARES..................................................................... 46 Purchase, Redemption and Exchange......................................................................... 46 Offering Price............................................................................................ 46 INFORMATION CONCERNING TAXES................................................................................... 47 General................................................................................................... 47 Equalization Accounting................................................................................... 48 Excise Tax................................................................................................ 48 Taxation of Fund Investments.............................................................................. 49 Taxation of Distributions................................................................................. 50 Disposition of Fund Shares................................................................................ 51 Foreign Taxes............................................................................................. 51 Federal Income Tax Rates.................................................................................. 52 Corporate Shareholders.................................................................................... 52 Foreign Shareholders...................................................................................... 52 Backup Withholding........................................................................................ 52 Tax-Deferred Plans........................................................................................ 53 UNDERWRITER COMPENSATION AND PAYMENTS.......................................................................... 53 FUND PERFORMANCE............................................................................................... 53 Advertising Fund Performance.............................................................................. 53 Yield Calculations........................................................................................ 55 Total Return Calculations................................................................................. 56 Cumulative Return......................................................................................... 56 After-Tax Return Calculations............................................................................. 57 APPENDIX A--DESCRIPTION OF SECURITY RATINGS.................................................................... A-1
ii APPENDIX B--GLOSSARY..................................................... B-1
iii ABOUT THIS SAI What is the SAI? The SAI, or statement of additional information, is a section of the registration statement filed with the SEC relating to the Fund. It generally contains information about the Fund that the SEC has concluded is not required to be in the Fund's prospectuses, but that investors may nevertheless find useful. The information generally supplements the discussion of matters set forth in the prospectuses. Specifically, the SAI, among other things, provides information about: Nations Funds Trust, which is the Delaware business trust that "houses" the Fund; the investment policies and permissible investments of the Fund; the management of the Fund, including the Board of Trustees, the investment adviser and sub-advisers; other service providers to the Fund; certain brokerage policies of the Fund; and performance information about the Fund. How should I use the SAI? The SAI is intended to be read in conjunction with the Fund's prospectuses. The SAI is not a prospectus and is not a substitute for reading any prospectus. A copy of any Fund prospectus may be obtained by calling Nations Funds at (800) 321-7854 or by visiting the Nations Funds online at www.nationsfunds.com. What governs the type of information that is put in the SAI? The information required to be included in the SAI is governed by a form (called Form N-1A) that all mutual funds must use to register their shares with the SEC and disclose information to investors. Form N-1A generally requires that every mutual fund provide certain information in its SAI (in addition to the information required to be in its prospectus), such as the investment policies and limitations of a fund, the fees that an investment adviser or sub-adviser receives for providing services to the fund and the fees directors or trustees receive from a fund. The SEC generally believes that if all mutual funds are generally required to disclose the same type of information, investors can more easily compare funds and make informed decisions about their investments. Is the SAI available on the Internet? Yes. The SAI is part of the registration statement for the Fund that is filed with the SEC electronically. The registration includes the prospectus, the SAI and other exhibits, such as various agreements and contracts. The SAI, and any supplements to it, can be found by searching the SEC's website at http://www.sec.gov/edgar/searchedgar/companysearch.htm. The name of the "Company Name" that investors should search for is "Nations Funds Trust." Who may I contact for more information? If you have any questions about the Fund, please call Nations Funds at (800) 321-7854. 1 HISTORY OF the TRUST Nations Funds Trust is a registered investment company in the Nations Funds Family. The Nations Funds Family currently has more than 70 distinct investment portfolios and total assets in excess of $150 billion. The Trust was organized as a Delaware business trust on October 22, 1999. The Fund has a fiscal year end of March 31st. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS General The Fund is an open-end, management investment company and is diversified. See "Capital Stock" for a listing and description of the classes of shares that the Fund offers, including shareholder rights. Investment Policies and Limitations The investment objective, principal investment strategies and the principal investment risks associated with these strategies for the Fund, are discussed in the Fund's prospectus. The following discussion of "fundamental" and "non-fundamental" investment policies and limitations for the Fund supplements the discussion in the prospectuses for the Fund. A fundamental policy may only be changed with shareholder approval. A non-fundamental policy may be changed by the Board, without shareholder approval. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of a Fund's assets that may be invested in any security or other asset, or sets forth a policy regarding a qualitative investment standard, compliance with such percentage limitation or standard will be determined solely at the time of the Fund's acquisition of such security or asset. Fundamental Policy Restrictions 1. The Fund may not underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered management investment companies. 2. The Fund may not purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. The Fund may not purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. The Fund may not purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting its principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions, and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 2 5. The Fund may not make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 6. The Fund may not borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 7. The Fund may not purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. Non-Fundamental Policy Restrictions 1. The Fund may invest in shares of other open-end management investment companies, subject to the limitations of the 1940 Act, the rules thereunder, and any orders obtained thereunder now or in the future. Any Fund that is purchased by the Fund in reliance on Section 12(d)(1)(G) of the 1940 Act or an exemptive order granting relief from Section 12(d)(1)(G) will not purchase shares of a related registered open-end investment company in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act. 2. The Fund may not invest or hold more than 15% of the Fund's net assets in illiquid securities. For this purpose, illiquid securities include, among others, (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale, (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days, and (c) repurchase agreements not terminable within seven days. 3. The Fund may invest in futures or options contracts regulated by the CFTC for (i) bona fide hedging purposes within the meaning of the rules of the CFTC and (ii) for other purposes if, as a result, no more than 5% of the Fund's net assets would be invested in initial margin and premiums (excluding amounts "in-the-money") required to establish the contracts. 4. The Fund may lend securities from its portfolio to brokers, dealers and financial institutions, in amounts not to exceed (in the aggregate) one-third of the Fund's total assets. Any such loans of portfolio securities will be fully collateralized based on values that are marked to market daily. 5. The Fund may not make investments for the purpose of exercising control of management. (Investments by the Fund in entities created under the laws of foreign countries solely to facilitate investment in securities in that country will not be deemed the making of investments for the purpose of exercising control.) 6. The Fund may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box") or the Fund segregates assets in the amount at least equal to the underlying security or asset. Exemptive Orders In addition to the policies outlined above, the Nations Funds Family has received the following exemptive orders from the SEC which enable the Fund to participate in certain transactions beyond the investment limitations described above or described in otherwise applicable restrictions: 1. Pursuant to an exemptive order dated October 5, 1993, all current and future funds advised by BA Advisors may, subject to certain conditions, pool their uninvested cash balances in one or more joint accounts and use the daily balance of such accounts to enter into repurchase agreements, including the condition that such agreements have a maturity of not more than seven days. 2. Pursuant to an exemptive order dated July 23, 1997, the Fund may, subject to certain conditions, use cash reserves that have not been invested in portfolio securities to purchase shares of Money Market Funds in the Nations Funds Family in excess of the limits prescribed in Section 12(d)(1) of the 1940 Act. 3 3. Pursuant to an exemptive order dated December 27, 2000, the Fund may, subject to certain conditions, invest in shares of other affiliated funds in the Nations Funds Family, in excess of the limits prescribed in Section 12(d)(1) of the 1940 Act, in addition to investing directly in portfolio securities. 4. The Fund soon expects to receive an exemptive order from the SEC, under which a Fund may, subject to certain conditions, borrow money from other funds in the Nations Funds Family for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with Fund investment policies and restrictions. All loans are set at an interest rate between the rates charged on overnight repurchase agreements and short-term bank loans. Permissible Fund Investments and Investment Techniques The Fund's prospectus identifies and summarizes the types of securities in which the Fund invests as part of its principal investment strategies and the risks associated with such investments. The following provides further information and greater detail about these investments and their key associated risks. Subject to its fundamental and non-fundamental investment policies: . The Fund may borrow money, lend its securities and invest in securities issued by other registered management investment companies. See "Descriptions of Permissible Investments--Borrowings," "Descriptions of Permissible Investments--Securities Lending" and "Descriptions of Permissible Investments--Other Investment Companies." . The Fund is permitted to use derivatives for hedging purposes or for non-hedging purposes, such as seeking to enhance return. See "Descriptions of Permissible Investments--Derivatives." . The Fund may hold cash or money market instruments, which include bank obligations, guaranteed investment contracts, repurchase agreements, U.S. Government obligations and certain corporate debt securities, such as commercial paper. The Fund may invest in these securities without limit, when the Adviser: (i) believes that the market conditions are not favorable for more aggressive investing, (ii) is unable to locate favorable investment opportunities, or (iii) determines that a temporary defensive position is advisable or necessary in order to meet anticipated redemption requests or for other reasons. Accordingly, the Fund will not always stay fully invested in equity securities or longer-term debt securities. See "Descriptions of Permissible Investments--Money Market Instruments." In addition to the types of securities described in the prospectus for this Fund, and consistent with its investment policies, objective and strategies, the Fund may invest in the following types of securities only in amounts of less than 10% of its total assets in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities; provided however, that if any such security type is listed in the Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. In addition, the Fund may invest up to 20% of its assets in foreign securities, notwithstanding the general 10% limit discussed above. While this Fund reserves the right to so invest, investing in foreign securities is not considered a principal investment strategy of the Fund. Asset-Backed Securities Asset-backed securities are securities issued by trusts and special purpose entities that are backed by pools of assets, such as automobile and credit-card receivables and home equity loans, which pass through the payments on the underlying obligations to the security holders (less servicing fees paid to the originator or fees for any credit enhancement). Typically, the originator of the loan or accounts receivable paper transfers it to a specially created trust, which repackages it as securities with a minimum denomination and a specific term. The securities are then privately placed or publicly offered. Examples include certificates for automobile receivables (CARs) and so-called plastic bonds, backed by credit card receivables. 4 The value of an asset-backed security is affected by, among other things, changes in the market's perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans and the financial institution providing any credit enhancement. Payments of principal and interest passed through to holders of asset-backed securities are frequently supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or by having a priority to certain of the borrower's other assets. The degree of credit enhancement varies, and generally applies to only a portion of the asset-backed security's par value. Value is also affected if any credit enhancement has been exhausted. See also "Descriptions of Permissible Investments--Mortgage-Backed Securities." Key Considerations and Risks: The risks of investing in asset-backed securities are ultimately dependent upon payment of the underlying loans by the individual borrowers (i.e., the backing asset). For example, the underlying loans are subject to prepayments, which shorten the weighted average life of asset-backed securities and may lower their return, in the same manner as described under "Descriptions of Permissible Investments--Mortgage-Backed Securities" for prepayments of a pool of mortgage loans underlying mortgage-backed securities. However, asset-backed securities typically do not have the benefit of the same direct security interest in the underlying collateral as do mortgage-backed securities. In addition, as purchasers of an asset-backed security, the Fund generally will have no recourse against the entity that originated the loans in the event of default by a borrower. If the credit enhancement of an asset-backed security held by the Fund has been exhausted, and, if any required payments of principal and interest are not made with respect to the underlying loans, the Fund may experience losses or delays in receiving payment. Bank Obligations (Domestic and Foreign) Bank obligations include, as examples, certificates of deposit, bankers' acceptances, commercial paper, Yankee dollar certificates of deposit, Eurodollar certificates of deposit, time deposits and promissory notes. A certificate of deposit, or so-called CD, is a debt instrument issued by a bank that usually pays interest and which has maturities ranging from a few weeks to several years. A bankers acceptance is a time draft drawn on and accepted by a bank, a customary means of effecting payment for merchandise sold in import-export transactions and a general source of financing. A Yankee dollar certificate of deposit is a negotiable CD issued in the United States by branches and agencies of foreign banks. A Eurodollar certificate of deposit is a CD issued by a foreign (mainly European) bank with interest and principal paid in U.S. dollars. Such CDs typically have maturities of less than two years and the interest rate on which is usually pegged to the London Interbank Offered Rate or LIBOR. A time deposit can be either a savings account or CD that is an obligation of a financial institution for a fixed term. Typically there are penalties for early withdrawal of a time deposit. A promissory note is a written commitment of the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest. A bank obligation may be issued by: (i) a domestic branch of a domestic bank; (ii) a foreign branch of a domestic bank; (iii) a U.S. branch of a foreign bank; or (iv) a foreign branch of a foreign bank. As a general matter, obligations of "domestic banks," are not subject to the Fund's fundamental investment policies regarding concentration limits. For this purpose, the SEC staff also takes the position that domestic branches of foreign banks and foreign branches of domestic banks may, if certain conditions are met, be treated as "domestic banks." More specifically, "domestic banks" include: (a) domestic branches of domestic banks; (b) domestic branches of foreign banks, to the extent they are subject to comparable regulation as domestic banks; and (c) foreign branches of domestic banks with respect to which the domestic bank would be unconditionally liable in the event that the foreign branch failed to pay on its instruments for any reason. The Fund may invest in exchange-traded Eurodollar contracts. For information about these types of securities, see "Descriptions of Permissible Investments--Futures and Options." Key Considerations and Risks: Certain bank obligations, such as some CDs, are insured by the FDIC. Many other bank obligations, however, are neither guaranteed nor insured by the U.S. Government. These bank obligations are "backed" only by the creditworthiness of the issuing bank or parent financial institution. Obligations of foreign banks, including Yankee dollar and Eurodollar obligations, involve somewhat different investment risks than those affecting obligations of domestic banks, including, among others, the 5 possibilities that their liquidity could be impaired because of political or economic developments, that the obligations may be less marketable than comparable obligations of domestic banks, that a foreign jurisdiction might impose withholding and other taxes on amounts realized on those obligations, that foreign deposits may be seized or nationalized, that foreign governmental restrictions such as exchange controls may be adopted, which might adversely affect the payment of principal or interest on those obligations, that the selection of the obligations may be based on less publicly available information concerning foreign banks or that the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to domestic banks. Foreign banks are not subject to examination by any U.S. Government agency or instrumentality. Borrowings The Fund has a fundamental policy with respect to borrowing that can be found under the heading "Investment Policies and Limitations." The Fund participates in an uncommitted line of credit provided by The Bank of New York under an agreement (the "Uncommitted Line"). Any advance under the Uncommitted Line is contemplated primarily for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest on borrowings is payable at the federal funds rate plus 0.50% on an annualized basis. Under the Uncommitted Line, each participating Fund must maintain a ratio of net assets (not including funds borrowed under the Uncommitted Line) to the aggregate amount of indebtedness pursuant to the Uncommitted Line that is no less than 4 to 1. Information about specific borrowings, if any, by any particular Fund under the Uncommitted Line over the last fiscal year, if any, can be found in its Annual Report to Shareholders for the year ended March 31, 2002. As noted above, pursuant to an exemptive order expected from the SEC, the Fund will be able to, subject to certain conditions, borrow money from other funds in the Nations Funds Family to for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with Fund investment policies and restrictions. All loans are set at an interest rate between the rates charged on overnight repurchase agreements and short-term bank loans. The Fund also may borrow money utilizing a reverse repurchase agreement transaction. See "Descriptions of Permissible Investments--Reverse Repurchase Agreements." Key Considerations and Risks: The Uncommitted Line is not a "committed" line of credit, which is to say that The Bank of New York is not obligated to lend money to the Fund. Accordingly, it is possible that the Fund may wish to borrow money for a temporary or emergency purpose but may not be able to do so. Common Stock Common stock are units of equitable ownership of a public company. Owners are typically entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. However, ownership of common stock does not entitle the owner to involvement in the day-to-day operations of the company. Common stock of domestic and foreign public corporations can be listed, and their shares traded, on domestic stock exchanges, like the NYSE, AMEX or the Nasdaq Stock Market. Domestic and foreign corporations also may instead choose to list their companies, and have their shares traded, on foreign exchanges, like the London FTSE or Tokyo Stock Exchange. Key Considerations and Risks: Investments by the Fund in common stocks are subject to stock market risk, which is the risk that the value of the stocks that the Fund holds, like the broader stock markets, may decline over short or even extended periods. Domestic and foreign stock markets tend to be cyclical, with periods when prices generally rise and periods when prices generally decline. The value of individual stocks will rise and fall based on factors specific to them, like changes in earnings or management. With respect specifically to "common" stock, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and "preferred" stock take precedence over the claims of those who own common stock. On the other hand, common stock tends to have greater potential for appreciation. Common stock investments also present the risk of investing in a particular company. For example, stocks of smaller companies tend to have greater price swings than stocks of larger companies because, among other things, they trade less frequently and in lower volumes, are more susceptible to changes in economic conditions, are more 6 reliant on singular products or services and are more vulnerable to larger competitors. Common stock of these companies may have a higher potential for gains but also carry more risk. Because the Fund invests primarily in these types of companies, these risks can have a more acute effect on the value of the Fund's shares. Common stock investments also present the risks of investing in a particular industry, such as high technology, financial services, consumer goods or natural resources (e.g., oil and gas). To some extent, the prices of common stocks tend to move by industry sector, which is to say that when market conditions favorably affect, or are expected to favorably affect, an industry, the prices of the common stock of those companies in that industry sector tend to go up. Conversely, negative news or a poor outlook for a particular industry can cause the value of those companies' common stock to drop. Convertible Securities Convertible securities are hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities typically consist of debt securities or preferred stock that may be converted within a specified period of time (typically for the entire life of the security) into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. They also include debt securities with warrants or common stock attached and derivatives combining the features of debt securities and equity securities. Convertible securities entitle the holder to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is redeemed, converted or exchanged. The market value of a convertible security generally is a function of its "investment value" and its "conversion value." A security's "investment value" represents the value of the security without its conversion feature (i.e., a comparable nonconvertible fixed-income security). The investment value is determined by, among other things, reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. A security's "conversion value" is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible security will trade like nonconvertible debt or preferred stock in the sense that its market value will not be influenced greatly by fluctuations in the market price of the underlying security into which it can be converted. Instead, the convertible security's price will tend to move in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market price of the underlying stock. In that case, the convertible security's price may be as volatile as that of the common stock. Because both interest rate and market movements can influence its value, a convertible security is not generally as sensitive to interest rates as a similar fixed-income security, nor is it generally as sensitive to changes in share price as its underlying stock. The Fund may invest in convertible securities that are below investment-grade (e.g., rated "B" or below by S&P). See "Descriptions of Permissible Investments--High Yield/Lower-rated Securities" and "Descriptions of Permissible Investments--Warrants and Rights." Key Considerations and Risks: The Fund's investments in convertible securities, particularly securities that are convertible into securities of an issuer other than the issuer of the convertible security, may be illiquid--that is, the Fund may not be able to dispose of such securities in a timely fashion or for a fair price, which could result in losses to the Fund. The Fund's investments in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock or other equity securities (of the same or a different issuer) at a specified date and a specified conversion ratio, or that are convertible at the option of the issuer. For issues where the conversion of the security is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock or other equity security has declined substantially. In addition, some convertibles are often rated below investment-grade or are not rated, and therefore may to be considered speculative investments. Companies that issue convertible securities are usually small to medium size, and accordingly carry the capitalization risks described under "Descriptions of Permissible Investments--Common Stock." In addition, the credit rating of a company's convertible securities is generally lower than that of its conventional debt securities. Convertibles are normally considered "junior" securities--that is, the company usually 7 must pay interest on its conventional corporate debt before it can make payments on its convertible securities. Some convertibles are particularly sensitive to interest rate changes when their predetermined conversion price is much higher than the issuing company's common stock. See also Key Considerations and Risks under "Descriptions of Permissible Investments--Common Stock." Corporate Debt Securities Corporate debt securities are fixed-income securities usually issued by businesses to finance their operations, although corporate debt instruments may also include bank loans to companies. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their maturities and secured or unsecured status. Commercial paper has the shortest term and is usually unsecured. The broad category of corporate debt securities includes debt issued by domestic or foreign companies of all kinds, including those with small-, mid- and large-capitalizations. Corporate debt may be rated investment-grade or below investment-grade and may carry variable or floating rates of interest. See also "Descriptions of Permissible Investments--Foreign Securities," "Descriptions of Permissible Investments--Variable- and Floating-Rate Instruments" and "Descriptions of Permissible Investments--Money Market Instruments." Key Considerations and Risks: Because of the wide range of types, and maturities, of corporate debt securities, as well as the range of creditworthiness of its issuers, corporate debt securities have widely varying potentials for return and risk profiles. For example, commercial paper issued by a large established domestic corporation that is rated investment-grade may have a modest return on principal, but carries relatively limited risk. On the other hand, a long-term corporate note issued by a small foreign corporation from an emerging market country that has not been rated by an NRSRO may have the potential for relatively large returns on principal, but carries a relatively high degree of risk. Corporate debt securities carry both credit risk and interest rate risk. Credit risk is the risk that the Fund could lose money if the issuer of a corporate debt security is unable to pay interest or repay principal when it's due. Some corporate debt securities that are rated below investment-grade are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. The credit risk of a particular issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of higher-ranking senior securities may receive amounts otherwise payable to the holders of more junior securities. Interest rate risk is the risk that the value of certain corporate debt securities will tend to fall when interest rates rise. In general, corporate debt securities with longer terms tend to fall more in value when interest rates rise than corporate debt securities with shorter terms. Derivatives A derivative is a financial contract whose value is based on (or "derived" from) a traditional security (such as a stock or a bond), an asset (such as a commodity like gold), or a market index (such as the S&P 500). Some forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indices, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex, and may be harder to value. Derivatives afford leverage and, when used properly, can enhance returns and be useful in hedging portfolios. Some common types of derivatives include: futures, options, options on futures, forward foreign currency exchange contracts, linked securities and structured products, collateralized mortgage obligations, stripped securities, warrants and swap contracts. For more information about each type of derivative see those sections in this SAI discussing such securities. The Fund may use derivatives for a variety of reasons, including to: enhance return, attempt to protect against possible changes in the market value of securities held in or to be purchased for the Fund's portfolio resulting from securities markets or currency exchange rate fluctuations (i.e., to hedge); protect the Fund's unrealized gains 8 reflected in the value of its portfolios securities; facilitate the sale of such securities for investment purposes; and/or manage the effective maturity or duration of the Fund's portfolio. The Fund may use any or all of these investment techniques and different types of derivative securities may be purchased at any time and in any combination. There is no particular strategy that dictates the use of one technique rather than another, as use of derivatives is a function of numerous variables including market conditions. Key Considerations and Risks: The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. See also "Descriptions of Permissible Investments--Futures and Options," "Descriptions of Permissible Investments--Linked Securities and Structured Products," "Descriptions of Permissible Investments--Stripped Securities," "Descriptions of Permissible Investments--Warrants and Rights" and "Descriptions of Permissible Investments--Swap Contracts." Dollar Roll Transactions Under a mortgage "dollar roll," the Fund sells mortgage-backed securities for delivery in a given month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the "roll" period, the Fund forgoes principal and interest paid on the mortgage-backed securities. The Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Fund may only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position which matures on or before the forward settlement date of the dollar roll transaction. At the time the Fund enters into a mortgage "dollar roll," it must establish a segregated account with its Custodian in which it will maintain cash, U.S. Government securities or other liquid debt or equity securities equal in value to its obligations with respect to dollar rolls, and accordingly, such dollar rolls are not considered borrowings. See also "Descriptions of Permissible Investments--Mortgage-Backed Securities." Key Considerations and Risks: Mortgage dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under an agreement may decline below the repurchase price. Also, these transactions involve some risk to the Fund if the other party should default on its obligation and the Fund is delayed or prevented from completing the transaction. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund's use of proceeds of the dollar roll may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Foreign Securities Foreign securities are debt, equity or derivative securities determined by the Fund's portfolio management team to be foreign based on an issuer's domicile, its principal place of business, the source of its revenue or other factors. Forward foreign currency exchange contracts -- Forward foreign currency exchange contracts establish an exchange rate at a future date. The Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security (a "transaction hedge"). In addition, when a foreign currency suffers a substantial decline against the U.S. dollar, the Fund may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's securities denominated in such foreign currency; or when it is believed that the U.S. dollar may suffer a substantial decline against the foreign currency, it may enter into a forward 9 purchase contract to buy that foreign currency for a fixed dollar amount (a "position hedge"). The Fund's custodian will segregate cash, U.S. Government securities or other high-quality debt securities having a value equal to the aggregate amount of the Fund's commitments under forward contracts entered into with respect to position hedges and cross-hedges. If the value of the segregated securities declines, additional cash or securities will be segregated on a daily basis so that the value of the segregated securities will equal the amount of the Fund's commitments with respect to such contracts. As an alternative to segregating all or part of such securities, the Fund may purchase a call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price, or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. The Fund may, however, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount when it is believed that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which the securities are denominated (a "cross-hedge"). Foreign currency hedging transactions are attempts to protect the Fund against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated portfolio position. Although these transactions tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of the hedged currency increase. Key Considerations and Risks: Foreign securities generally pose risks above those typically associated with an equity, debt or derivative security due to: (1) restrictions on foreign investment and repatriation of capital; (2) fluctuations in currency exchange rates, which can significantly affect the Fund's share price; (3) costs of converting foreign currency into U.S. dollars and U.S. dollars into foreign currencies; (4) greater price volatility and less liquidity; (5) settlement practices, including delays, which may differ from those customary in U.S. markets; (6) exposure to political and economic risks, including the risk of nationalization, expropriation of assets and war; (7) possible impositions of foreign taxes and exchange control and currency restrictions; (8) lack of uniform accounting, auditing and financial reporting standards; (9) less governmental supervision of securities markets, brokers and issuers of securities; (10) less financial information available to investors; and (11) difficulty in enforcing legal rights outside the United States. Certain of the risks associated with investments in foreign securities are heightened with respect to investments in emerging markets countries. Political and economic structures in many emerging market countries, especially those in Eastern Europe, the Pacific Basin, and the Far East, are undergoing significant evolutionary changes and rapid development, and may lack the social, political and economic stability of more developed countries. Investing in emerging markets securities also involves risks beyond the risks inherent in foreign investments. For example, some emerging market countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies may not be traded internationally and some countries with emerging securities markets have sustained long periods of very high inflation or rapid fluctuation in inflation rates which can have negative effects on a country's economy and securities markets. As noted, foreign securities also involve currency risks. The U.S. dollar value of a foreign security tends to decrease when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and tends to increase when the value of the U.S. dollar falls against such currency. The Fund may purchase or sell forward foreign currency exchange contracts to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. The Fund may also purchase and sell foreign currency futures contracts and related options. See "Descriptions of Permissible Investments--Futures and Options." SPECIAL RISKS REGARDING EUROPE and the EURO: On January 1, 1999, eleven of the fifteen member countries of the European Union fixed their currencies irrevocably to the euro, the new unit of currency of the European Economic and Monetary Union. In addition to adopting a single currency, member countries will no longer control their own monetary policies. Instead, the authority to direct monetary policy is now exercised by the European Central Bank. While economic and monetary convergence in the European Union may offer new opportunities for those investing in the region, investors should be aware that the success and future prospects of the union cannot be predicted with certainty. Europe must grapple with a number of challenges, any one of which could 10 threaten the success and prospects of this monumental undertaking. For example, eleven disparate economies must adjust to a unified monetary system, the absence of exchange rate flexibility, and the loss of economic sovereignty. The continent's economies are diverse, its governments are decentralized, and its cultures differ widely. In addition, one or more member countries might exit the union, placing the currency and banking system in jeopardy. If the Fund invests in euro-denominated securities (including currency contracts) there is the additional risk of being exposed to a new currency that may not fully reflect the strengths and weaknesses of the disparate economies that make up the Union. As of August 1, 2002, the euro was trading near highs against the U.S. dollar. Futures and Options Futures and options contracts are derivative instruments that the Fund may utilize for a variety of reasons including, for hedging purposes, risk reduction, securities exposure, to enhance return, to enhance liquidity, to reduce transaction costs or other reasons. See generally "Descriptions of Permissible Investments--Derivatives." Futures - Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security (including a single stock) or index at a specified future time and at a specified price. Futures contracts, which are standardized as to maturity date and underlying financial instrument, are traded on national futures exchanges. Futures exchanges and trading are regulated under the Commodity Exchange Act by the CFTC, a U.S. Government agency. Assets committed by the Fund to a futures contract will be segregated to the extent required by law. Although many fixed-income futures contracts call for actual delivery or acceptance of the underlying securities at a specified date (stock index futures contracts do not permit delivery of securities), the contracts are normally closed out before the settlement date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold," "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract is bought or sold. Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying security) if it is not terminated prior to the specified delivery date. Minimal initial margin requirements are established by the futures exchange and may be changed. Brokers may establish deposit requirements which are higher than the exchange minimum's. Futures contracts are customarily purchased and sold on margin which may range upward from less than 5% of the value of the contract being traded. After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional "variation" margin will be required. Conversely, a change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Fund expects to earn interest income on their margin deposits. Traders in futures contracts may be broadly classified as either "hedgers" or "speculators." Hedgers use the futures markets primarily to offset unfavorable changes (anticipated or potential) in the value of securities currently owned or expected to be acquired by them. Speculators are less inclined to own the securities underlying the futures contracts which they trade, and use futures contracts with the expectation of realizing profits from fluctuations in the value of the underlying securities. Regulations of the CFTC applicable to the Fund require that all of its futures transactions constitute bona fide hedging transactions except to the extent that the aggregate initial margins and premiums required to establish any non-hedging positions do not exceed five percent of the value of the respective Fund's portfolio. The Fund may also invest in exchange-traded Eurodollar contracts, which are interest rate futures on the forward level of LIBOR. These contracts are generally considered liquid securities and trade on the Chicago Mercantile Exchange. Such Eurodollar contracts are generally used to "lock-in" or hedge the future level of short-term rates. Options - The Fund may purchase and write (i.e., sell) put and call options. Such options may relate to particular securities or stock indices, and may or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the Options Clearing Corporation. A call option for a particular security gives the purchaser of the option the right to buy, and the writer (seller) the obligation to sell, the underlying security at the 11 stated exercise price at any time prior to the expiration of the option, regardless of the market price of the security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell the security at the stated exercise price at any time prior to the expiration date of the option, regardless of the market price of the security. Stock index options are put options and call options on various stock indices. In most respects, they are identical to listed options on common stocks. A primary difference between stock options and index options becomes evident when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock index upon which the option is based is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market value of the stocks included in the index. For example, some stock index options are based on a broad market index, such as the S&P 500 Index or a narrower market index, such as the S&P 100. Indices may also be based on an industry or market segment, such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indices are currently traded on the following exchanges: the Chicago Board Options Exchange, the NYSE, the AMEX, the Pacific Stock Exchange, and the Philadelphia Stock Exchange. The Fund's obligation to sell an instrument subject to a call option written by it, or to purchase an instrument subject to a put option written by it, may be terminated prior to the expiration date of the option by the Fund's execution of a closing purchase transaction, which is effected by purchasing on an exchange an option of the same series (i.e., same underlying instrument, exercise price and expiration date) as the option previously written. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying instrument from being called, to permit the sale of the underlying instrument or to permit the writing of a new option containing different terms on such underlying instrument. The cost of such a liquidation purchase plus transactions costs may be greater than the premium received upon the original option, in which event the Fund will have incurred a loss in the transaction. Options on Futures - The Fund may purchase options on the futures contracts described above. A futures option gives the holder, in return for the premium paid, the right to buy (call) from or sell (put) to the writer of the option a futures contract at a specified price at any time during the period of the option. Upon exercise, the writer of the option is obligated to pay the difference between the cash value of the futures contract and the exercise price. Like the buyer or seller of a futures contract, the holder, or writer, of an option has the right to terminate its position prior to the scheduled expiration of the option by selling, or purchasing, an option of the same series, at which time the person entering into the closing transaction will realize a gain or loss. Investments in futures options involve some of the same considerations that are involved in connection with investments in futures contracts (for example, the existence of a liquid secondary market). In addition, the purchase of an option also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option purchased. Depending on the pricing of the option compared to either the futures contract upon which it is based, or upon the price of the securities being hedged, an option may or may not be less risky than ownership of the futures contract or such securities. In general, the market prices of options can be expected to be more volatile than the market prices on the underlying futures contract. Compared to the purchase or sale of futures contracts, however, the purchase of call or put options on futures contracts may frequently involve less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). Key Considerations and Risks: Futures and options investing are highly specialized activities that entail greater than ordinary investment risks. For example, futures and options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in a future or an option may be subject to greater fluctuation than an investment in the underlying instruments themselves. With regard to futures, the risk of loss in trading futures contracts in some strategies can be substantial, due both to the relatively low margin deposits required, and the potential for an extremely high degree of leverage involved in futures contracts. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial loss (or gain) to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would 12 result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount posted as initial margin for the contract. With regard to options, an option writer, unable to effect a closing purchase transaction, will not be able to sell the underlying instrument or liquidate the assets held in a segregated account, as described below, until the option expires or the optioned instrument is delivered upon exercise with the result that the writer in such circumstances will be subject to the risk of market decline or appreciation in the instrument during such period. If an option purchased by the Fund expires unexercised, the Fund realizes a loss equal to the premium paid. If the Fund enters into a closing sale transaction on an option purchased by it, the Fund will realize a gain if the premium received by the Fund on the closing transaction is more than the premium paid to purchase the option, or a loss if it is less. If an option written by the Fund expires on the stipulated expiration date or if the Fund enters into a closing purchase transaction, it will realize a gain (or loss if the cost of a closing purchase transaction exceeds the net premium received when the option is sold). If a call option written by the Fund is exercised, the proceeds of the sale of the underlying instrument will be increased by the net premium received when the option was written and the Fund will realize a gain or loss on the sale of the underlying instrument. If a put option written by the Fund is exercised, the Fund's basis in the underlying instrument will be reduced by the net premium received when the option was written. With regard to both futures and options contracts, positions may be closed out only on an exchange which provides a secondary market for such contracts. However, there can be no assurance that a liquid secondary market will exist for any particular contract at any specific time. Thus, it may not be possible to close a position. In the case of a futures contract, for example, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such a situation, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. The inability to close the futures position also could have an adverse impact on the ability to hedge effectively. The Fund generally will minimize the risk that it will be unable to close out a contract by only entering into those contracts which are traded on national exchanges and for which there appears to be a liquid secondary market. In addition, there is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in a futures contract or related option. Most futures exchanges limit the amount of fluctuation permitted in some contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. The successful use by the Fund of futures and options on stock indices will be subject to the ability to correctly predict movements in the directions of the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities. The Fund therefore bears the risk that future market trends will be incorrectly predicted. In addition, the Fund's ability to effectively hedge all or a portion of the securities in its portfolio, in anticipation of or during a market decline, through transactions in futures or put options on stock indices, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by the Fund. Inasmuch as the Fund's securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, the Fund will bear the risk that the prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indices. The Fund will comply with SEC guidelines regarding coverage for these instruments and, if the guidelines so require, maintain cash or liquid securities with its Custodian in the prescribed amount. Under current SEC guidelines, the Fund will maintain or "segregate" assets either itself or with the Custodian to cover transactions in which the Fund writes or sells options. Assets used as cover cannot be sold while the position in the corresponding option is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of the 13 Fund's assets to cover option obligations could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations. Guaranteed Investment Contracts and Funding Agreements Guaranteed investment contracts, investment contracts or funding agreements are debt instruments issued by highly-rated insurance companies. Pursuant to such contracts, the Fund may make cash contributions to a deposit fund of the insurance company's general or separate accounts. Key Considerations and Risks: The Fund will only purchase GICs from issuers which, at the time of purchase, meet certain credit and quality standards. Generally, GICs are not assignable or transferable without the permission of the issuing insurance companies, and an active secondary market in GICs does not currently exist. In addition, the issuer may not be able to return the principal amount of a GIC to the Fund on seven days' notice or less, at which point the GIC may be considered to be an illiquid investment. Unlike certain types of money market instruments, there is no government guarantee on the payment of principal or interest; only the insurance company backs the GIC. High Yield/Lower-Rated Debt Securities A high yield/lower-rated debt security (also known as a "junk" bond) is generally rated by an NRSRO to be non investment-grade (e.g., BB or lower by S&P). These types of bonds are issued by companies without long track records of sales and earnings, or by companies or municipalities that have questionable credit strength. High yield/lower-rated debt and comparable unrated securities: (a) will likely have some quality and protective characteristics that, in the judgment of the NRSRO, are outweighed by large uncertainties or major risk exposures to adverse conditions; and (b) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. See also "Descriptions of Permissible Investments--Corporate Debt Securities" and "Descriptions of Permissible Investments--Municipal Securities." The Fund may invest in high yield/lower-rated securities that are also convertible securities. See "Descriptions of Permissible Investments--Convertible Securities." Key Considerations and Risks: The yields on high yield/lower-rated debt and comparable unrated debt securities generally are higher than the yields available on investment-grade debt securities. However, investments in high yield/lower-rated debt and comparable unrated debt generally involve greater volatility of price and risk of loss of income and principal, including the possibility of default by or insolvency of the issuers of such securities. Since the risk of default is higher for high yield/lower-rated debt securities, the Fund will try to minimize the risks inherent in investing in these securities by engaging in credit analysis, diversification, and attention to current developments and trends affecting interest rates and economic conditions. The Fund will attempt to identify those issuers of high-yielding securities whose financial condition is adequate to meet future obligations, has improved, or is expected to improve in the future. Accordingly, with respect to these types of securities, the Fund may be more dependent on credit analysis than is the case for higher quality bonds. The market values of certain high yield/lower-rated debt and comparable unrated securities tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, issuers of high yield/lower-rated debt and comparable unrated securities often are highly leveraged and may not have more traditional methods of financing available to them so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss due to default by such issuers is significantly greater because high yield/lower-rated debt and comparable unrated securities generally are unsecured and frequently are subordinated to senior indebtedness. The Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. The existence of limited markets for high yield/lower-rated debt and comparable unrated securities may diminish the Fund's ability to: (a) obtain accurate market quotations for purposes of valuing such securities and calculating its net asset value; and (b) sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in financial markets. Although the general market for high yield/lower-rated debt and comparable unrated securities is no longer new, the market for such securities has not yet weathered a major sustained economic recession. The effect that such 14 a recession might have on such securities is not known. Any such recession, however, could disrupt severely the market for such securities and adversely affect the value of such securities. Any such economic downturn also could severely and adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon. Because certain high yield/lower-rated debt securities also may be foreign securities, some of which may be considered debt securities from emerging markets countries, there are certain additional risks associated with such investments. See "Descriptions of Permissible Investments--Foreign Securities." Linked Securities and Structured Products Linked securities, such as index-linked, equity-linked, credit-linked, commodity-linked and currency-linked securities, are types of derivative securities. See generally "Descriptions of Permissible Investments--Derivatives." Index-linked, equity-linked, credit-linked and commodity-linked securities can be either equity or debt securities that call for interest payments and/or payment at maturity in different terms than the typical note where the borrower agrees to make fixed interest payments and to pay a fixed sum at maturity. Principal and/or interest payments depend on the performance of an underlying stock, index, or a weighted index of commodity futures such as crude oil, gasoline and natural gas. With respect to equity-linked securities, at maturity, the principal amount of the debt is exchanged for common stock of the issuer or is payable in an amount based on the issuer's common stock price at the time of maturity. Currency-linked debt securities are short-term or intermediate-term instruments that have a value at maturity, and/or an interest rate, determined by reference to one or more foreign currencies. Payment of principal or periodic interest may be calculated as a multiple of the movement of one currency against another currency, or against an index. One common type of linked security is a "structured" product. Structured products generally are individually negotiated agreements and may be traded over-the-counter. They are organized and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, or specified instruments (such as commercial bank loans) and the issuance by that entity or one or more classes of securities ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities and interest rate provisions, and the extent of such payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Another common type of index-linked security is a S&P Depositary Receipt, or SPDR, which is an interest in a unit investment trust holding a portfolio of securities linked to the S&P 500 Index. Because a unit investment trust is an investment company under the 1940 Act, the Fund's investments in SPDRs are subject to the limitations set forth in Section 12(d)(1)(A) of the 1940 Act. See also "Descriptions of Permissible Investments--Other Investment Companies." SPDRs closely track the underlying portfolio of securities, trade like a share of common stock and pay periodic dividends proportionate to those paid by the portfolio of stocks that comprise the S&P 500 Index. As a holder of interests in a unit investment trust, the Fund would indirectly bear its ratable share of that unit investment trust's expenses. At the same time, the Fund would continue to pay its own management and advisory fees and other expenses, as a result of which the Fund and its shareholders in effect will be absorbing duplicate levels of fees with respect to investments in such unit investment trusts. Key Considerations and Risks: Like all derivatives, the Fund's investments in "linked" securities can lead to large losses because of unexpected movements in the underlying financial asset, index, currency or other investment. The ability of the Fund to utilize linked-securities successfully will depend on its ability to correctly predict pertinent market movements, which cannot be assured. Because currency-linked securities usually relate to foreign currencies, some of which may be currency from emerging markets countries, there are certain additional risks associated with such investments. See "Descriptions of Permissible Investments--Foreign Securities." With respect to structured products, because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Investments in structured securities are generally of a class that is either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated 15 structured securities. Structured securities are typically sold in private placement transactions, and there is currently no active trading market for these securities. See also, "Descriptions of Permissible Investments--Private Placement Securities and Other Restricted Securities." SPDRs are subject to the risks of an investment in a broadly based portfolio of common stocks, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of such investment. In addition, because individual investments in SPDRs are not redeemable, except upon termination of the unit investment trust, the liquidity of small holdings of SPDRs will depend upon the existence of a secondary market. Large holdings of SPDRs are called "creation unit size" and are redeemable in kind only and are not redeemable for cash from the unit investment trust. The price of a SPDR is derived from and based upon the securities held by the unit investment trust. Accordingly, the level of risk involved in the purchase or sale of a SPDR is similar to the risk involved in the purchase or sale of traditional common stock, with the exception that the pricing mechanism for SPDRs is based on a basket of stocks. Disruptions in the markets for the securities underlying SPDRs purchased or sold by the Fund could result in losses on SPDRs. Money Market Instruments Money market instruments are high-quality, short-term debt obligations, which include bank obligations, funding agreements, repurchase agreements, U.S. Government obligations, certain corporate debt securities, such as commercial paper and master notes (which are generally understood to be unsecured obligations of a firm (often private and/or unrated), privately negotiated by borrower and lender, that contemplates a series of recurring loans and repayments, governed in each case by the terms of the one master note). Such instruments also may be structured to be, what would not otherwise be, a money market instrument by modifying the maturity of a security or interest rate adjustment feature to come within permissible limits. Money market mutual funds (i.e., funds that comply with Rule 2a-7 of the 1940 Act) are permitted to purchase most money market instruments, subject to certain credit quality, maturity and other restrictions. See "Descriptions of Permissible Investments--Bank Obligations," "Descriptions of Permissible Investments--Corporate Debt Securities," "Descriptions of Permissible Investments--Guaranteed Investment Contracts and Funding Agreements," "Descriptions of Permissible Investments--Repurchase Agreements" and "Descriptions of Permissible Investments--U.S. Government Obligations." Key Considerations and Risks: Money market instruments (other than certain U.S. Government obligations) are not backed or insured by the U.S. Government, its agencies or instrumentalities. Accordingly, only the creditworthiness of an issuer, or guarantees of that issuer, support the instrument. Mortgage-Backed Securities A mortgage-backed security is a type of pass-through security, which is a security representing pooled debt obligations repackaged as interests that pass income through an intermediary to investors. In the case of mortgage-backed securities, the ownership interest is in a pool of mortgage loans. See "Descriptions of Permissible Investments--Pass-Through Securities." Mortgage-backed securities are most commonly issued or guaranteed by the Government National Mortgage Association ("Ginnie Mae" or "GNMA"), Federal National Mortgage Association ("Fannie Mae" or "FNMA") or Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"), but may also be issued or guaranteed by other private issuers. GNMA is a government-owned corporation that is an agency of the U.S. Department of Housing and Urban Development. It guarantees, with the full faith and credit of the United States, full and timely payment of all monthly principal and interest on its mortgage-backed securities. FNMA is a private, shareholder-owned company that purchases both government-backed and conventional mortgages from lenders and securitizes them. Its objective is to increase the affordability of home mortgage funds for low- and middle-income home buyers. FNMA is a congressionally chartered, company, although neither its stock nor the securities it issues are insured or guaranteed by the federal government. For example, the pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest only by FNMA. FHLMC is a publicly chartered agency that buys qualifying residential mortgages from lenders, re-packages them and provide certain guarantees. The corporation's stock is owned by savings institutions across the U.S. and is held in trust by the Federal Home Loan Bank System. Pass-through securities issued by the FHLMC are guaranteed as to timely payment of interest and ultimately collection of principal only by the FHLMC. 16 Mortgage-backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. The average life of a mortgage-backed security is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal invested far in advance of the maturity of the mortgages in the pool. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities (collateral collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-through securities are interests in a trust composed of Mortgage Assets and all references in this section to CMOs include multi-class pass-through securities. Principal prepayments on the Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates, resulting in a loss of all or part of the premium if any has been paid. Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal and interest payments on the Mortgage Assets may be allocated among the various classes of CMOs in several ways. Typically, payments of principal, including any prepayments, on the underlying mortgages are applied to the classes in the order of their respective stated maturities or final distribution dates, so that no payment of principal is made on CMOs of a class until all CMOs of other classes having earlier stated maturities or final distribution dates have been paid in full. Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage securities. The Fund will only invest in SMBS that are obligations backed by the full faith and credit of the U.S. Government. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. The Fund will only invest in SMBS whose mortgage assets are U.S. Government obligations. A common type of SMBS will be structured so that one class receives some of the interest and most of the principal from the mortgage assets, while the other class receives most of the interest and the remainder of the principal. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of any class which consists primarily or entirely of principal payments generally is unusually volatile in response to changes in interest rates. Key Considerations and Risks: Investment in mortgage-backed securities poses several risks, including among others, prepayment, market and credit risk. Prepayment risk reflects the risk that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise prepayment options at the time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions. Market risk reflects the risk that the price of a security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and the Fund invested in such securities wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold. Credit risk reflects the risk that the Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations. Obligations issued by U.S. Government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. Government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions. With respect to GNMA certificates, although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult. Municipal Securities Municipal Bonds - Municipal bonds are debt obligations issued by the states, territories and possessions of the United States and the District of Columbia, and also by their political subdivisions, duly constituted offering authorities and instrumentalities. States, territories, possessions and municipalities may issue municipal bonds for a variety of reasons, including for example, to raise funds for various public purposes such as airports, housing, hospitals, mass transportation, schools, water and sewer works. They may also issue municipal bonds to refund outstanding obligations and to meet general operating expenses. Public authorities also issue municipal bonds to 17 obtain funding for privately operated facilities, such as housing and pollution control facilities, industrial facilities or for water supply, gas, electricity or waste disposal facilities. Municipal bonds generally are classified as "general obligation" or "revenue" bonds. There are, of course, variations in the security of municipal bonds, both within a particular classification and between classifications, depending on numerous factors. General obligation bonds are secured by the issuer's pledge of its good faith, credit and taxing power for the payment of principal and interest. The payment of the principal of and interest on such bonds may be dependent upon an appropriation by the issuer's legislative body. The characteristics and enforcement of general obligation bonds vary according to the law applicable to the particular issuer. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source. Municipal bonds may include "moral obligation" bonds, which are normally issued by special purpose public authorities. If the issuer of moral obligation bonds is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. Private activity bonds (such as an industrial development or industrial revenue bond) held by the Fund are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Private activity bonds have been or are issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities, and certain local facilities for water supply, gas, electricity, or sewage or solid waste disposal. Private activity bonds are also issued for privately held or publicly owned corporations in the financing of commercial or industrial facilities. Most governments are authorized to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities. Municipal Notes - Municipal notes are issued by states, municipalities and other tax-exempt issuers to finance short-term cash needs or, occasionally, to finance construction. Most municipal notes are general obligations of the issuing entity payable from taxes or designated revenues expected to be received within the related fiscal period. Municipal obligation notes generally have maturities of one year or less. Municipal notes are subdivided into three categories of short-term obligations: municipal notes, municipal commercial paper and municipal demand obligations. Municipal commercial paper typically consists of very short-term unsecured negotiable promissory notes that are sold to meet seasonal working capital or interim construction financing needs of a municipality or agency. While these obligations are intended to be paid from general revenues or refinanced with long-term debt, they frequently are backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or institutions. Municipal demand obligations are subdivided into two general types: variable rate demand notes and master demand obligations. Variable rate demand notes are tax-exempt municipal obligations or participation interests that provide for a periodic adjustment in the interest rate paid on the notes. They permit the holder to demand payment of the notes, or to demand purchase of the notes at a purchase price equal to the unpaid principal balance, plus accrued interest either directly by the issuer or by drawing on a bank letter of credit or guaranty issued with respect to such note. The issuer of the municipal obligation may have a corresponding right to prepay at its discretion the outstanding principal of the note plus accrued interest upon notice comparable to that required for the holder to demand payment. The variable rate demand notes in which the Fund may invest are payable, or are subject to purchase, on demand usually on notice of seven calendar days or less. The terms of the notes provide that interest rates are adjustable at intervals ranging from daily to six months. Master demand obligations are tax-exempt municipal obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. The interest on such obligations is, in the opinion of counsel for the borrower, excluded from gross income for federal income tax purposes. Although there is no secondary market for master demand obligations, such obligations are considered by the Fund to be liquid because they are payable upon demand. The Fund has no specific percentage limitations on investments in master demand obligations. 18 Municipal Leases - Municipal securities also may include participation's in privately arranged loans to state or local government borrowers, some of which may be referred to as "municipal leases." Generally such loans are unrated, in which case they will be determined by the Adviser to be of comparable quality at the time of purchase to rated instruments that may be acquired by the Fund. Frequently, privately arranged loans have variable interest rates and may be backed by a bank letter of credit. In other cases, they may be unsecured or may be secured by assets not easily liquidated. Moreover, such loans in most cases are not backed by the taxing authority of the issuers and may have limited marketability or may be marketable only by virtue of a provision requiring repayment following demand by the lender. Such loans made by the Fund may have a demand provision permitting the Fund to require payment within seven days. Participation's in such loans, however, may not have such a demand provision and may not be otherwise marketable. Although lease obligations do not constitute general obligations of the municipal issuer to which the government's taxing power is pledged, a lease obligation is ordinarily backed by the government's covenant to budget for, appropriate, and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the government has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a "non-appropriation" lease, the Fund's ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property in the event foreclosure might prove difficult. Key Considerations and Risks: There are variations in the quality of municipal securities, both within a particular classification and between classifications, and the yields on municipal securities depend upon a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of NRSROs represent their opinions as to the quality of municipal securities. It should be emphasized, however, that these ratings are general and are not absolute standards of quality, and municipal securities with the same maturity, interest rate, and rating may have different yields while municipal securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to its purchase by the Fund, an issue of municipal securities may cease to be rated, or its rating may be reduced below the minimum rating required for purchase by that Fund. The Adviser will consider such an event in determining whether the Fund should continue to hold the obligation. Other Investment Companies In seeking to attain its investment objective, the Fund may invest in securities issued by other investment companies within the limits prescribed by the 1940 Act, its rules and regulations and any exemptive orders obtained by the Fund from the SEC. See also "Investment Policies and Limitations--Exemptive Orders." The 1940 Act generally requires that the Fund limit its investments in another investment company or series thereof so that, as determined immediately after a securities purchase is made: (a) not more than 5% of the value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of other investment companies; and (c) not more than 3% of the outstanding voting stock of any one investment company or series thereof will be owned by the Fund or by the company as a whole. The Fund has obtained permission from the SEC (via an exemptive order) to purchase shares of other mutual funds in the Nations Funds Family. The SEC order is subject to certain conditions, including that a Board, before approving an advisory contract (including the advisory fee) applicable to the Fund, will find that the advisory fees applicable to the Fund relying on the order are for services in addition to, rather than duplicative of, services provided pursuant to the "investee" Fund's advisory contract. The Fund also has obtained separate permission from the SEC (via exemptive order) to purchase shares of Money Market Funds. To seek to achieve a return on uninvested cash or for other reasons, investing Fund may invest up to 25% of their assets in any Money Market Fund. These investments are generally on a short-term basis. BA Advisors and its affiliates are entitled to receive fees from the Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. 19 One condition of the SEC order is that a Money Market Fund may not acquire securities of any other investment company in excess of the limits stated in the second paragraph (above) of this section. Key Considerations and Risks: There are certain advantages for the Fund to be able invest in shares of other investment companies; for example, it may allow the Fund to gain exposure to a type of security. It also may facilitate the Fund being fully invested. However, there may be certain disadvantages; for example, it may cost more in terms of fees. That is to say, a shareholder may be charged fees not only on the Fund shares he holds directly, but also on the mutual fund shares that his Fund purchases. Whether any anticipated return from such an investment will outweigh the costs of purchasing such mutual fund shares when deciding to invest will be considered by the Fund. Pass Through Securities (Participation Interests and Company Receipts) A pass-through security is a share or certificate of interest in a pool of debt obligations that have been repackaged by an intermediary, such as a bank or broker-dealer. The purchaser of a pass-through security receives an undivided interest in the underlying pool of securities. The issuers of the underlying securities make interest and principal payments to the intermediary which are passed through to purchasers, such as the Fund. The most common type of pass-through securities are mortgage-backed securities. GNMA Certificates are mortgage-backed securities that evidence an undivided interest in a pool of mortgage loans. GNMA Certificates differ from bonds in that principal is paid back monthly by the borrowers over the term of the loan rather than returned in a lump sum at maturity. The Fund may purchase modified pass-through GNMA Certificates, which entitle the holder to receive a share of all interest and principal payments paid and owned on the mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or not the mortgagor actually makes the payment. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. FHLMC issues two types of mortgage pass-through securities: mortgage participation certificates and guaranteed mortgage certificates. Participation certificates resemble GNMA Certificates in that the participation certificates represent a pro rata share of all interest and principal payments made and owned on the underlying pool. FHLMC guarantees timely payments of interest on the participation certificates and the full return of principal. Guaranteed mortgage certificates also represent a pro rata interest in a pool of mortgages. However, these instruments pay interest semi-annually and return principal once a year in guaranteed minimum payments. This type of security is guaranteed by FHLMC as to timely payment of principal and interest but is not backed by the full faith and credit of the U.S. Government. FNMA issues guaranteed mortgage pass-through certificates. FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate represents a pro rata share of all interest and principal payments made and owned on the underlying pool. This type of security is guaranteed by the FNMA as to timely payment of principal and interest but is not backed by the full faith and credit of the U.S. Government. Key Considerations and Risks: Except for guaranteed mortgage certificates, each of the mortgage-backed securities described above is characterized by monthly payments to the holder, reflecting the monthly payments made by the borrowers who received the underlying mortgage loans. The payments to the securities holders, such as the Fund, like the payments on the underlying loans, represent both principal and interest. Although the underlying mortgage loans are for specified periods of time, such as 20 or 30 years, the borrowers can, and typically do, pay them off sooner. Thus, the security holders frequently receive prepayments of principal in addition to the principal that is part of the regular monthly payments. Estimated prepayment rates will be a factor considered in calculating the average weighted maturity of the Fund which owns these securities. A borrower is more likely to prepay a mortgage that bears a relatively high rate of interest. This means that in times of declining interest rates, higher yielding mortgage-backed securities held by the Fund might be converted to cash and the Fund will be forced to accept lower interest rates when that cash is used to purchase additional securities in the mortgage-backed securities sector or in other investment sectors. Additionally, prepayments during such periods will limit the Fund's ability to participate in as large a market gain as may be experienced with a comparable security not subject to prepayment. Preferred Stock Preferred stock are units of ownership of a public corporation that pay dividends at a specified rate and have preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. Most preferred stock is cumulative; if dividends are passed (i.e., not paid for any reason), they accumulate and must be paid before common stock dividends. A passed dividend on noncumulative 20 preferred stock is generally gone forever. Participating preferred stock entitles its holders to share in profits above and beyond the declared dividend, along with common shareholders, as distinguished from nonparticipating preferred stock, which is limited to the stipulated dividend. Convertible preferred stock is exchangeable for a given number of common shares and thus tends to be more volatile than nonconvertible preferred stock, which generally behaves more like a fixed-income bond. Auction preferred stock ("APS") is a type of adjustable-rate preferred stock whose dividend is determined every seven weeks in a dutch auction process by corporate bidders. Shares are typically bought and sold at face values ranging from $100,000 to $500,000 per share. Auction preferred stock is sometimes known by the proprietary name given by the relevant broker, e.g., Merril Lynch's AMPS (auction market preferred stock), Salomon Smith Barney's DARTS or First Boston's STARS. Benefits of APS include: . reduced interest rate risk--Because these securities generally reset within a short period of time, the exposure to interest rate risk is somewhat mitigated. . preservation of principal--The frequency of the dividend reset provisions makes APS an attractive cash management instrument. The auction reset mechanism generally assures that the shares will trade at par on the auction date. For those that reset frequently the share price is not expected to fluctuate from par, however the reset rate will reflect factors such as market conditions, demand and supply for a particular credit confidence in the issuer. . credit quality--most corporate APS carry an investment grade credit rating from both Moody's and S&P, municipal APS typically carry the highest credit rating from both Moody's and S&P (Aaa/AAA). This is primarily because the issuers of municipal APS are required under the 1940 Act, to maintain at least 300% asset coverage for senior securities. . 70% dividend reduction--For corporate APS, qualified corporate buyers (except Subchapter S corporations) may deduct 70% of dividend received from federal income taxation under current regulations. However, in order to qualify for this deduction, the securities must be held a minimum of 46 days. Key Considerations and Risks: In addition to reinvestment risk if interest rates trend lower, some specific risks with regard to APS include: . failed auction--Such a breakdown of the auction process is unlikely; however, in the event that the process fails, the rate is reset at the maximum applicable rate, which is usually described in the prospectus and is typically influenced by the issuer's credit rating. In a failed auction, current shareholders are generally unable to sell some, or all, of the shares when the auction is completed. Typically, the liquidity for APS that have experienced a failed auction becomes very limited. If a failed auction were to occur, the shareholder may hold his or her shares until the next auction. Should there not be subsequent auctions that `unfail' the process, the shareholder may: 1) hold the APS in anticipation of a refinancing by the issuer that would cause the APS to be called, or 2) hold securities either indefinitely or in anticipation of the development of a secondary market. . early call risk--Although unlikely, the preferred shares are redeemable at any time, at the issuers option, at par plus accrued dividends. . loss of 70% dividend received deduction (DRD)--If a qualified corporation liquidates a position of APS in the secondary market prior to the 46-day holding period, the eligibility for DRD would be lost. Also see Key Considerations and Risks under "Descriptions of Permissible Investments--Common Stock" and "Descriptions of Permissible Investments--Convertible Securities," many of which are applicable to a preferred stock investment. Private Placement Securities and Other Restricted Securities Although many securities are offered publicly, some are offered privately only to certain qualified investors. Private placements may often offer attractive opportunities for investment not otherwise available on the open market. However, the securities so purchased are often "restricted," i.e., they cannot be sold to the public without registration under the 1933 Act or the availability of an exemption from registration (such as Rules 144 or 144A), or they are "not readily marketable" because they are subject to other legal or contractual delays in or restrictions on resale. 21 Generally speaking, private placements may be sold only to qualified institutional buyers, or in a privately negotiated transaction to a limited number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration. Private placements may be considered illiquid securities. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities. Illiquid securities are considered to include, among other things, written over-the-counter options, securities or other liquid assets being used as cover for such options, repurchase agreements with maturities in excess of seven days, certain loan participation interests, fixed time deposits which are not subject to prepayment or provide for withdrawal penalties upon prepayment (other than overnight deposits), and other securities whose disposition is restricted under the federal securities laws (other than securities issued pursuant to Rule 144A under the 1933 Act and certain commercial paper that has been determined to be liquid under procedures approved by the Board). Illiquid securities may include privately placed securities, which are sold directly to a small number of investors, usually institutions. Key Considerations and Risks: Private placements are generally subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such investments, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities only at prices lower than if such securities were more widely held. At times, it may also be more difficult to determine the fair value of such securities for purposes of computing the Fund's net asset value due to the absence of a trading market. Unlike public offerings, restricted securities are not registered under the federal securities laws. Although certain of these securities may be readily sold, others may be illiquid, and their sale may involve substantial delays and additional costs. REITs and Master Limited Partnerships A real estate investment trust, or REIT, is a managed portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls. An equity REIT holds equity positions in real estate, and it seeks to provide its shareholders with income from the leasing of its properties, and with capital gains from any sales of properties. A mortgage REIT specializes in lending money to developers of properties, and passes any interest income it may earn to its shareholders. Partnership units of real estate and other types of companies are sometimes organized as master limited partnerships in which ownership interests are publicly traded. Master limited partnerships often own several properties or businesses (or directly own interests) that are related to real estate development and oil and gas industries, but they also may finance motion pictures, research and development and other projects. Generally, a master limited partnership is operated under the supervision of one or more managing general partners. Limited partners (like the Fund that invests in a master limited partnership) are not involved in the day-to-day management of the partnership. They are allocated income and capital gains associated with the partnership project in accordance with the terms established in the partnership agreement. Key Considerations and Risks: REITs may be affected by changes in the value of the underlying property owned or financed by the REIT; Mortgage REITs also may be affected by the quality of credit extended. Both equity and mortgage REITs are dependent upon management skills and may not be diversified. REITs also may be subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for preferential treatment under the Code. The real estate industry is particularly sensitive to economic downturns. The value of securities of issuers in the real estate industry is sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, overbuilding, extended vacancies of properties, and the issuer's management skill. In addition, the value of a REIT can depend on the structure of and cash flow generated by the REIT. Mortgage REITs are subject to the risk that mortgagors may not meet their payment obligations. Each investment also has its unique interest rate and payment priority characteristics. In addition, REITs are subject to unique tax requirements which, if not met, could adversely affect dividend payments. Also, in the event of a default of an underlying 22 borrower or lessee, a REIT could experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. The risks of investing in a master limited partnership are generally those involved in investing in a partnership as opposed to a corporation. For example, state law governing partnerships is often less restrictive than state law governing corporations. Accordingly, there may be less protections afforded investors in a master limited partnership than investors in a corporation. Additional risks involved with investing in a master limited partnership are risks associated with the specific industry or industries in which the partnership invests, such as the risks of investing in real estate, or oil and gas industries. Repurchase Agreements A repurchase agreement is a money market instrument that is a contract under which the Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). Repurchase agreements may be viewed, in effect, as loans made by the Fund which are collateralized by the securities subject to repurchase. Typically, the Fund will enter into repurchase agreements only with commercial banks and registered broker/dealers and only with respect to the highest quality securities, such as U.S. Government obligations. Such transactions are monitored to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including any accrued interest. See "Descriptions of Permissible Investments--Money Market Instruments." Key Considerations and Risks: Repurchase Agreements are generally subject to counterparty risks, which is the risk that the counterparty to the agreement could default on the agreement. If a seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement, including interest. In addition, if the seller becomes involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if, for example, the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller or its assigns. Pursuant to an exemptive order issued by the SEC, the Fund may "combine" uninvested cash balances into a joint account, which may be invested in one or more repurchase agreements. Reverse Repurchase Agreements A reverse repurchase agreement is a contract under which the Fund sells a security for cash for a relatively short period (usually not more than one week) subject to the obligation of the Fund to repurchase such security at a fixed time and price (representing the seller's cost plus interest). Reverse repurchase agreements may be viewed as borrowings made by the Fund. At the time the Fund enters into a reverse repurchase agreement, it may establish a segregated account on its own books, or with its Custodian, in which it will maintain cash, U.S. Government securities or other liquid assets equal in value to its obligations in respect of reverse repurchase agreements. Key Considerations and Risks: Reverse repurchase agreements involve the risk that the market value of the securities the Fund are obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. In addition, reverse repurchase agreements are techniques involving leverage, and are subject to asset coverage requirements if the Fund does not establish and maintain a segregated account. Under the requirements of the 1940 Act, the Fund is required to maintain an asset coverage (including the proceeds of the borrowings) of at least 300% of all borrowings. Depending on market conditions, the Fund's asset coverage and other factors at the time of a reverse repurchase, the Fund may not establish a segregated account when the Adviser believes it is not in the best interests of the Fund to do so. In this case, such reverse repurchase agreements will be considered borrowings subject to the asset coverage described above. Securities Lending For various reasons, including to enhance the Fund's return, the Fund may lend its portfolio securities to broker/dealers and other institutional investors. Loans are typically made pursuant to agreements that require the 23 loans be continuously secured by collateral equal at all times in value to at least the market value of the securities loaned. Such loans may not be made if, as a result, the aggregate amount of all outstanding securities loans for the Fund exceed one-third of the value of the Fund's total assets. The Fund will continue to receive interest on the loaned securities while simultaneously earning interest on the investment of the collateral. However, the Fund will normally pay lending fees to such broker/dealers and related expenses from the interest earned on invested collateral. The Money Market Funds do not engage in securities lending. Key Considerations and Risks: Securities lending transactions are generally subject to counterparty risks, which is the risk that the counterparty to the transaction could default. In other words, the risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. However, loans are made only to borrowers deemed to be of good standing and when, in its judgment, the income to be earned from the loan justifies the attendant risks. Short Sales Selling a security short is the sale of a security or commodity futures contract not owned by the seller. The technique is used to take advantage of an anticipated decline in the price or to protect a profit in a long-term position. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position is closed out. Until the Fund closes its short position or replaces the borrowed security, the Fund will cover its position with an offsetting position or maintain a segregated account containing cash or liquid instruments at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short. The Fund will sometimes make short sales of securities when the Fund owns an equal amount of such securities as those securities sold short. This is a technique known as selling short "against the box." Key Considerations and Risks: The successful use by the Fund of short sales will be subject to the ability of the Adviser to correctly predict movements in the directions of the relevant market. The Fund therefore bears the risk that the Adviser will incorrectly predict future price directions. In addition, if the Fund sells a security short, and that security's price goes up, the Fund will have to make up the margin on its open position (i.e., purchase more securities on the market to cover the position). It may be unable to do so and thus its position may not be closed out. There can be no assurance that the Fund will not incur significant losses in such a case. Selling securities short "against the box" entails many of the same risks and considerations described above. However, when the Fund sells short "against the box" it typically limits the amount of securities that the Fund has leveraged. Stripped Securities Stripped securities are derivatives. See generally "Descriptions of Permissible Investments--Derivatives." They are securities where an instrument's coupon (or interest ) is separated from its corpus (or principal) and then are re-sold separately, usually as zero-coupon bonds. Because stripped securities are typically products of brokerage houses and the U.S. Government, there are many different types and variations. For example, separately traded interest and principal securities, or STRIPS, are component parts of a U.S. Treasury security where the principal and interest components are traded independently through the Federal Book-Entry System. Stripped mortgage-backed securities , or SMBS, are also issued by the U.S. Government or an agency. TIGERS are Treasury securities stripped by brokers. See also "Descriptions of Permissible Investments--Zero-Coupon Securities." The Adviser will only purchase stripped securities for Money Market Funds where the securities have a remaining maturity of 397 days or less; therefore, the Money Market Funds may only purchase the interest component parts of U.S. Treasury securities. Key Considerations and Risks: If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recover its initial investment. The market value of the class 24 consisting entirely of principal payments can be extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are also volatile and there is a greater risk that the initial investment will not be fully recovered. SMBS issued by the U.S. Government (or a U.S. Government agency or instrumentality) may be considered liquid under guidelines established by the Trust's Board if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of the Fund's per share net asset value. Swap Contracts Swap agreements are derivative instruments. See generally "Descriptions of Permissible Investments--Derivatives." They can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease the Fund's exposure to long- or short-term interest rates, foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names and include interest rate, index, credit, equity, credit default and currency exchange rate swap agreements. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to pay fixed rates in exchange for floating rates while holding fixed-rate bonds, the swap would tend to decrease the Fund's exposure to long-term interest rates. Caps and floors have an effect similar to buying or writing options. Key Considerations and Risks: Depending on how they are used, swap agreements may increase or decrease the overall volatility of the Fund's investments and its share price and yield. Additionally, whether the Fund's use of swap contracts will be successful in furthering its investment objective will depend on the Adviser's ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factor that determines the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses. However, the Fund will closely monitor the credit of a swap contract counterparty in order to minimize this risk. The Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. The Adviser does not believe that the Fund's obligations under swap contracts are senior securities and, accordingly, the Fund will not treat them as being subject to its borrowing restrictions. U.S. Government Obligations U.S. Government obligations are money market instruments. They include securities that are issued or guaranteed by the United States Treasury, by various agencies of the United States Government, or by various instrumentalities which have been established or sponsored by the United States Government. U.S. Treasury securities are backed by the "full faith and credit" of the United States. Securities issued or guaranteed by federal agencies and the U.S. Government sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. Some of the U.S. Government agencies that issue or guarantee securities include the Export-Import Bank of the United States, Farmers Home Administration, Federal Housing Administration, Maritime Administration, Small Business Administration, and The Tennessee Valley Authority. An instrumentality of the U.S. Government is a government agency organized under Federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, Federal Home Loan Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit Banks and FNMA. 25 Because of their relative liquidity and high credit quality, U.S. Government obligations are often purchased by the Money Market Funds, and can in some instances, such as for Treasury Reserves, comprise almost all of their portfolios. Key Considerations and Risks: In the case of those U.S. Government obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment, and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitment. Variable- and Floating-Rate Instruments These types of securities have variable- or floating-rates of interest and, under certain limited circumstances, may have varying principal amounts. Unlike a fixed interest rate, a variable or floating interest rate is one that rises and falls based on the movement of an underlying index of interest rates. For example, many credit cards charge variable interest rates, based on a specific spread over the prime rate. Most home equity loans charge variable rates tied to the prime rate. Variable- and floating-rate instruments pay interest at rates that are adjusted periodically according to a specified formula; for example, some adjust daily and some adjust every six months. The variable- or floating-rate tends to decrease the security's price sensitivity to changes in interest rates. These types of securities are relatively long-term instruments that often carry demand features permitting the holder to demand payment of principal at any time or at specified intervals prior to maturity. Key Considerations and Risks: In order to most effectively use these investments, the Adviser must correctly assess probable movements in interest rates. This involves different skills than those used to select most portfolio securities. If the Adviser incorrectly forecasts such movements, the Fund could be adversely affected by the use of variable- or floating-rate obligations. Warrants and Rights A warrant is a type of security, usually issued together with a bond or preferred stock, that entitles the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at the time of issuance, for a period of years or to perpetuity. In contrast, rights, which also represent the right to buy common stock, normally have a subscription price lower than the current market value of the common stock and a life of two to four weeks. A warrant is usually issued as a sweetener, to enhance the marketability of the accompanying fixed-income securities. Warrants are freely transferable and are traded on major exchanges. The prices of warrants do not necessarily correlate with the prices of the underlying securities and are, therefore, generally considered speculative investments. Key Considerations and Risks: The purchase of warrants involves the risk that the purchaser could lose the purchase value of the warrant if the right to subscribe to additional shares is not exercised prior to the warrant's expiration, if any. Also, the purchase of warrants involves the risk that the effective price paid for the warrant added to the subscription price of the related security may exceed the value of the subscribed security's market price such as when there is no movement in the level of the underlying security. When-Issued Purchases, Delayed Delivery and Forward Commitments The Fund may agree to purchase securities on a when-issued or delayed delivery basis or enter into a forward commitment to purchase securities. These types of securities are those where the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and, if applicable, the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. When the Fund engages in these transactions, its Custodian, or the Fund itself, will segregate liquid assets equal to the amount of the commitment. The Fund will make commitments to purchase securities on a when-issued or delayed delivery basis or to purchase or sell securities on a forward commitment basis only with the intention of completing the transaction and actually purchasing or selling the securities. If deemed advisable as a matter of investment strategy, however, the Fund may dispose of or renegotiate a commitment after it is entered into, and may sell securities it has committed to 26 purchase before those securities are delivered to the Fund on the settlement date. In these cases the Fund may realize a capital gain or loss. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of the Fund starting on the date the Fund agrees to purchase the securities. The Fund does not earn dividends on the securities it has committed to purchase until they are paid for and delivered on the settlement date. When the Fund makes a forward commitment to sell securities it owns, the proceeds to be received upon settlement are included in the Fund's assets. Fluctuations in the value of the underlying securities are not reflected in the Fund's net asset value as long as the commitment remains in effect. Risks and Other Considerations: Investment in securities on a when-issued or delayed delivery basis may increase the Fund's exposure to market fluctuation and may increase the possibility that the Fund's shareholders will suffer adverse federal income tax consequences if the Fund must engage in portfolio transactions in order to honor a when-issued or delayed delivery commitment. In a delayed delivery transaction, the Fund relies on the other party to complete the transaction. If the transaction is not completed, the Fund may miss a price or yield considered to be advantageous. The Fund will employ techniques designed to reduce such risks. If the Fund purchases a when-issued security, the Fund's Custodian, or the Fund itself, will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. To the extent that liquid assets are segregated, they will not be available for new investments or to meet redemptions. Securities purchased on a delayed delivery basis may require a similar segregation of liquid assets. In delayed delivery transactions, delivery of the securities occurs beyond normal settlement periods, but the Fund would not pay for such securities or start earning interest on them until they are delivered. However, when the Fund purchases securities on such a delayed delivery basis, it immediately assumes the risk of ownership, including the risk of price fluctuation. Failure by a counterparty to deliver a security purchased on a delayed delivery basis may result in a loss or missed opportunity to make an alternative investment. Depending upon market conditions, the Fund's delayed delivery purchase commitments could cause its net asset value to be more volatile, because such securities may increase the amount by which the Fund's total assets, including the value of when-issued and delayed delivery securities held by the Fund, exceed its net assets. Zero-Coupon, Pay-In-Kind and Step-Coupon Securities A zero-coupon security is one that makes no periodic interest payments but instead is sold at a deep discount from its face value. There are many different kinds of zero-coupon securities. The most commonly known is the zero-coupon bond, which either may be issued at a deep discount by a corporation or government entity or may be created by a brokerage firm when it strips the coupons off a bond and sells the bond of the note and the coupon separately. This technique is used frequently with U.S. Treasury bonds, and the zero-coupon issue is marketed under such names as CATS (Certificate of Accrual on Treasury Securities), TIGER (Treasury Investor Growth Receipt) or STRIPS (Separate Trading of Registered Interest and Principal of Securities). Zero-coupon bonds are also issued by municipalities. Buying a municipal zero-coupon bond frees its purchaser of the worry about paying federal income tax on imputed interest, since the interest is tax-exempt for federal income tax purposes. Zero-coupon certificates of deposit and zero-coupon mortgages also exists; they work on the same principle as zero-coupon bonds--the CD holder or mortgage holder receives face value at maturity, and no payments until then. See "Descriptions of Permissible Investments--Stripped Securities." Pay-in-kind bonds normally give the issuer an option to pay cash at a coupon payment date or give the holder of the security a similar bond with the same coupon rate and a face value equal to the amount of the coupon payment that would have been made. Step-coupon bonds trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. The discount from the face amount or par value depends on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security and the perceived credit quality of the issue. In general, owners of zero-coupon, step-coupon and pay-in-kind bonds have substantially all the rights and 27 privileges of owners of the underlying coupon obligations or principal obligations. Owners of these bonds have the right upon default on the underlying coupon obligations or principal obligations to proceed directly and individually against the issuer, and are not required to act in concert with other holders of such bonds. Key Considerations and Risks: Generally, the market prices of zero-coupon, step-coupon and pay-in-kind securities are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to changes in interest rates to a greater degree than other types of debt securities. Because zero-coupon securities bear no interest, they are the most volatile of all fixed-income securities. Since zero-coupon bondholders do not receive interest payments, zeros fall more dramatically than bonds paying out interest on a current basis when interest rates rise. However, when interest rates fall, zero-coupon securities rise more rapidly in value than full-coupon bonds, because the bonds have locked in a particular rate of reinvestment that becomes more attractive the further rates fall. The greater the number of years that a zero-coupon security has until maturity, the less an investor has to pay for it, and the more leverage is at work for the investor. For example, a bond maturing in 5 years may double, but one maturing in 25 years may increase in value 10 times, depending on the interest rate of the bond. Other Considerations Temporary Defensive Purposes The Fund may hold cash or money market instruments. It may invest in these securities without limit, when the Adviser: (i) believes that the market conditions are not favorable for profitable investing, (ii) is unable to locate favorable investment opportunities, or (iii) determines that a temporary defensive positions advisable or necessary in order to meet anticipated redemption requests, or for other reasons. When the Fund engages in such strategies, it may not achieve its investment objective. Portfolio Turnover The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as "portfolio turnover." The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover (e.g., over 100%) involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in adverse tax consequences to the Fund's shareholders. The trading costs and tax effects associated with portfolio turnover may adversely affect the Fund's performance. For more about the Fund's portfolio turnover rate, please refer to the prospectuses for the Fund. MANAGEMENT OF THE TRUST The business and affairs of the Trust are managed under the direction of the Board. The Board is generally responsible for the overall management and supervision of the business and affairs of the Trust and the Fund, which includes formulating policies for the Fund, approving major service provider contracts (including investment advisory agreements) and authorizing Trust officers to carry out the actions of the Board. A majority of the Trustees are not affiliated with the Adviser or otherwise "interested persons" as defined in the 1940 Act; these Trustees are referred to as Independent Trustees. Although all Trustees are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Trust, the Independent Trustees have particular responsibilities for assuring that the Trust is managed in the best interests of its shareholders, including being charged with certain specific legally mandated duties. The Board, including certain of its Committees described below, meet at least quarterly to review, among other things, the business and operations, investment performance and regulatory compliance of the Fund. At least annually, the Board reviews, among other things, the fees paid to: (i) the Adviser and any affiliates, for investment advisory and sub-advisory services and other administrative and shareholder services; and (ii) the Distributor for the distribution and sale of Fund shares. 28 The Trustees and Principal Officers The following table provides basic information about the Trustees and Officers of the Trust. Each Trustee and Officer serves an indefinite term, with the Trustees subject to retirement from service as required pursuant to the Trust's retirement policy at the end of the calendar year in which a Trustee turns 72, provided that any Trustee who was a trustee or director of any of the other Companies in the Nations Funds Family as of February 22, 2001, and who reached the age of 72 no later than the end of that calendar year may continue to serve as a Trustee of the Trust until the end of the calendar year in which such Trustee reaches age 75 and may continue to serve for successive annual periods thereafter upon the vote of a majority of the other Trustees. In the table below and throughout this section, information for Trustees who are not "interested" persons of the Trust, as that term is defined under the 1940 Act ("Independent Trustees"), appears separately from the information for the Interested Trustees.
Number of Funds in Term of Principal Fund Office and Occupation(s) Complex Position Held Length of During the Past Overseen by Other Directorships Held Name, Age and Address with the Trust Time Served Five Years Trustee by Trustee INDEPENDENT TRUSTEES William P. Carmichael Trustee Indefinite Senior Managing 81 Director, Cobra Age: 58 term; Director of The Electronics Corporation c/o Nations Funds Trustee Succession Fund (a (electronic equipment One Bank of America Plaza since 1999 company formed to manufacturer), Opta Food Charlotte, NC 28255 advise and buy Ingredients, Inc. (food family owned ingredients manufacturer) companies) from and Golden Rule Insurance 1998 through April Company since May, 1994; 2001. Trustee, Nations Funds Family (2 other registered investment companies) William H. Grigg Trustee Indefinite Retired; Chairman 85 Director, The Shaw Group, Age: 69 term; Emeritus since July Inc.; and Director and c/o Nations Funds Trustee 1997, Chairman and Vice Chairman, Aegis One Bank of America Plaza since 1999 Chief Executive Insurance Services, Ltd. Charlotte, NC 28255 Officer through (a mutual fund insurance July 1997 - Duke company in Bermuda); Board Power Co. member, Nations Funds Family (6 other registered investment companies) Thomas F. Keller Trustee Indefinite R.J. Reynolds 81 Director, Wendy's Age: 70 term; Industries International, Inc. c/o Nations Funds Trustee Professor of (restaurant operating and One Bank of America Plaza since 1999 Business franchising); Director, Charlotte, NC 28255 Administration, Dimon, Inc. (tobacco); and Fuqua School of Director, Biogen, Inc. Business, Duke (pharmaceutical University, since biotechnology); Board July 1974; Dean, member, Nations Funds Fuqua School of Family (6 other registered Business Europe, investment companies) Duke University, July 1999 through June 2001 Carl E. Mundy, Jr. Trustee Indefinite President and Chief 81 Director - Shering-Plough Age: 67 term; Executive Officer - (pharmaceuticals and c/o Nations Funds Trustee USO from May 1996 health care products); One Bank of America Plaza since 1999 to May 2000; General Dynamics Charlotte, NC 28255 Commandant - United Corporation (defense States Marine Corps systems); Trustee, Nations from July 1991 to Funds Family (2 other July 1995; Member, registered investment Board of Advisors companies) to the Comptroller General of the United States; Chairman, Board of Trustees, Marine Corps University Foundation;
29
Number of Funds in Term of Principal Fund Office and Occupation(s) Complex Position Held Length of During the Past Overseen by Other Directorships Held Name, Age and Address with the Trust Time Served Five Years Trustee by Trustee Dr. Cornelius J. Pings Trustee Indefinite Retired; President, 81 Director, Farmers Group, Age: 73 term; Association of Inc. (insurance company); c/o Nations Funds Trustee American Trustee, Nations Funds One Bank of America Plaza since 1999 Universities Family (2 other registered Charlotte, NC 28255 through June 1998; investment companies) Charles B. Walker Trustee Indefinite Vice Chairman and 81 Director - Ethyl Age: 63 term; Chief Financial Corporation (chemical c/o Nations Funds Trustee Officer - Albemarle manufacturing); Trustee, One Bank of America Plaza since 1999 Corporation Nations Funds Family (2 Charlotte, NC 28255 (chemical other registered manufacturing) investment companies) INTERESTED TRUSTEES/(1)/ Edmund L. Benson, III Trustee Indefinite Director, President 81 Director, Insurance Age: 65 term; and Treasurer, Managers Inc. (insurance); c/o Nations Funds Trustee Saunders & Benson, Director, Insurance One Bank of America Plaza since 1999 Inc. (insurance) Managers, Inc. Charlotte, NC 28255 (insurance); Trustee, Nations Funds Family (2 other registered investment companies) James B. Sommers Trustee Indefinite Retired 81 Chairman - Central Age: 63 term; Piedmont Community c/o Nations Funds Trustee Director, College One Bank of America Plaza since 1999 Foundation; Board of Charlotte, NC 28255 Commissioners, Charlotte/Mecklenberg Hospital Authority; Trustee, Central Piedmont Community College, Mint Museum of Art; Trustee, Nations Funds Family (2 other registered investment companies) A. Max Walker President, Indefinite Independent 85 Chairman and Board member, Age: 80 Trustee and term; Financial Consultant Nations Funds Family (6 c/o Nations Funds Chairman of Trustee other registered One Bank of America Plaza the Board since 1999 investment companies) Charlotte, NC 28255 Thomas S. Word, Jr. Trustee Indefinite Partner - McGuire, 81 Director - Vaughan-Bassett Age: 64 term; Woods, Battle & Furniture Company, Inc. c/o Nations Funds Trustee Boothe LLP (law (furniture); Trustee, One Bank of America Plaza since 1999 firm) Nations Funds Family (2 Charlotte, NC 28255 other registered investment companies) OFFICERS Richard H. Blank, Jr. Secretary and n/a Senior Vice n/a none Age: 44 Treasurer President since Stephens Inc. 1998, and Vice 111 Center Street President from 1994 Little Rock, AR 72201 to 1998 -- Mutual Fund Services, Stephens Inc.; Secretary since September 1993 and Treasurer since November 1998 -
30
Number of Funds in Term of Principal Fund Office and Occupation(s) Complex Position Held Length of During the Past Overseen by Other Directorships Held Name, Age and Address with the Trust Time Served Five Years Trustee by Trustee Nations Funds Family (6 other registered investment companies)
______________ /(1)/ Basis of Interestedness. Mr. Benson's step-son is an employee of Bank of America, the parent of BA Advisors. Mr. Sommers own securities of Bank of America Corporation, the parent holding company of BA Advisors. Mr. Word is affiliated with a law firm which provides services to Bank of America and certain of its affiliates. Mr. A. Max Walker is an Interested Trustee by virtue of the fact that he also serves as President of the Trust. Board Committees The Trust has an Audit Committee, Governance Committee and Investment Committee. The primary responsibilities of the Audit Committee are, as set forth in its charter, to make recommendations to the Board as to: the engagement or discharge of the independent auditors (including the audit fees charged by auditors); supervise investigations into matters relating to audit matters; review with the independent auditors the results of audits; and address any other matters regarding audits. The members of the Audit Committee are: Dr. Thomas Keller (Chair), Dr. Cornelius Pings and Charles B. Walker. The Audit Committee members are not "interested" persons (as defined in the 1940 Act). The primary responsibilities of the Governance Committee are, as set forth in its charter, to make recommendations to the Board on issues related to the Independent Trustees and the composition and operation of the Board, and communicate with management on those issues. The Governance Committee also evaluates and nominates Trustee candidates. The members of the Governance Committees are: William H. Grigg (Chair), William P. Carmichael and Carl E. Mundy, Jr. The Governance Committee members are not "interested" persons (as defined in the 1940 Act). The Governance Committee generally does not consider unsolicited nominations to the Board. The primary responsibilities of the Investment Committee are, as set forth in its charter, to assist the Board in carrying out its oversight responsibilities in specific areas of investment management, both by acting as liaison between the full Board and the Adviser on investment matters, and by acting on behalf of the Board, on an interim basis, on investment issues in non-recurring or extraordinary circumstances when it is impractical to convene a meeting of the full Board. In carrying out these general responsibilities, the Investment Committee assists the Board in connection with issues relating to: the investment policies and procedures adopted for the Fund; appropriate performance benchmarks and other comparative issues; portfolio management staffing and other personnel issues of the Adviser; investment related compliance issues; possible exemptive applications or other relief necessary or appropriate with respect to investment matters; and other investment related matters referred from time to time to the Committee by the full Board. The Committee reports its activities to the full Board on a regular basis and are responsible for making such recommendations with respect to the matters described above and other matters as the Committee may deem necessary or appropriate. The members of the Investment Committees are: William P. Carmichael (Chair), Edmund L. Benson, James B. Sommers and Thomas S. Word, Jr. Board Compensation Trustees are compensated for their services to the Nations Funds Family on a complex-wide basis, and not on a per registered investment company or per fund basis, as follows: 31
--------------------------------------------------------------------------------------------------- Trustee Annual Retainer: $71,000 Board Chairman: Additional 25% of the base annual retainer. Terms: Payable in quarterly installments. Payable pro rata for partial calendar year service. Allocated across multiple registrants. Meeting Fees: $6,000 per meeting for in-person meetings (up to six meetings per calendar year) and $1,000 for telephone meetings. Allocated across multiple registrants convened at meetings. --------------------------------------------------------------------------------------------------- Audit Committee Member Chairman: Additional 10% of the combined base retainer and all meeting fees as Trustee. Meeting Fees: $1,000 per meeting if not held within one calendar day before or after regularly scheduled Board meetings. Allocated across multiple registrants convened at meetings. --------------------------------------------------------------------------------------------------- Governance Committee Member Chairman: Additional 10% of the combined retainer and all meeting fees as Trustee. Meeting Fees: $1,000 per meeting if not held within one calendar day before or after regularly scheduled Board meetings. Allocated across multiple registrants convened at meetings. --------------------------------------------------------------------------------------------------- Investment Committee Member Chairman: Additional 10% of the combined retainer and all meeting fees as Trustee. Meeting Fees: $1,000 per meeting if not held within one calendar day before or after regularly scheduled Board meetings. Allocated across multiple registrants convened at meetings.
Compensation Table for the Fiscal Year Ended March 31, 2002 -----------------------------------------------------------
Pension or Estimated Total Compensation Aggregate Retirement Benefits Annual from the Nations Compensation Accrued as Part of Benefits Upon Funds Complex Paid Name of Trustee from the Trust/(1)/ Fund Expenses Retirement to Directors/(2)(3)/ - ------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------- William P. Carmichael $12,459 $ 47,734 $ 9,547 $ 38,032 - ------------------------------------------------------------------------------------------------------------- William H. Grigg 13,436 137,141 43,028 120,950 - ------------------------------------------------------------------------------------------------------------- Thomas F. Keller 13,436 130,353 42,271 120,950 - ------------------------------------------------------------------------------------------------------------- Carl E. Mundy 12,214 98,347 23,469 94,500 - ------------------------------------------------------------------------------------------------------------- Cornelius J. Pings 12,214 38,427 7,685 94,500 - ------------------------------------------------------------------------------------------------------------- Charles B. Walker 12,214 185,105 37,021 94,500 - ------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------- Edmund L. Benson, III $12,214 $186,573 $37,315 94,500 - ------------------------------------------------------------------------------------------------------------- James B. Sommers 12,332 72,459 14,492 95,500 - ------------------------------------------------------------------------------------------------------------- A. Max Walker 15,268 120,169 48,034 139,125 - ------------------------------------------------------------------------------------------------------------- Thomas S. Word, Jr. 12,332 189,172 37,834 95,500
_______________________ /(1)/ All Trustees receive reasonable reimbursements for expenses related to their attendance at meetings of the Board. Except to the extent that A. Max Walker, as Chairman of the Board, can be deemed to be an officer of the Trust, no officer of the Trust receives direct remuneration from the Trust for serving in such capacities. The dollar amount reflected in this column includes only those funds that were "housed" in the Trust through March 31, 2002. On May 10, 2002 and May 17, 2002, all of the funds of NFT, NFI and NR (other registered 32 investment companies in the Nations Funds Family) were reorganized into the Trust. Accordingly, compensation received by Trustees for supervising those funds housed in NFT, NFI and NR are not reflected in this column. /(2)/ Messrs. Grigg, Keller and A.M. Walker currently receive compensation from 7 investment companies that are deemed to be part of the Nations Funds "fund complex," as that term is defined under Item 13 of Form N-1A. Messrs. Benson, Carmichael, C. Walker, Sommers, Mundy and Word currently receive compensation from 3 investment companies deemed to be part of the Nations Funds complex. However, the dollar amount reflected in this column includes the additional compensation received from NFT, NFI and NR because during the fiscal year ended March 31, 2002, funds in the Nations Funds Family were still housed in those registered investment companies. /(3)/ Total compensation amounts include deferred compensation payable to or accrued for the following Trustees: Edmund L. Benson, III $45,596; William P. Carmichael $9,756; William H. Grigg $74,028; Thomas F. Keller $100,314; James B. Sommers $2,390; and Thomas S. Word, Jr. $92,157. Retirement Plan On November 29, 2001, the Board approved the termination of the Nations Funds Retirement Plan effective January 1, 2002. The eligible Trustees had the option of a rollover into the Nations Funds Deferred Compensation Plan on January 1, 2002 or to take a lump sum distribution, including interest, on January 1, 2003. The estimated annual benefits upon retirement stated above reflect the five year payout period, but will be paid out in a lump sum as the options state above. Under the terms of the Nations Funds Retirement Plan, which although now terminated was in effect through December 31, 2001, each eligible Trustee may be entitled to certain benefits upon retirement from the board of one or more of the Fund in the Nations Funds Fund Complex. Pursuant to the Retirement Plan, the normal retirement date is the date on which an eligible director has attained age 65 and has completed at least five years of continuous service with one or more of the funds. If a director retires before reaching age 65, no benefits are payable. Each eligible director is entitled to receive an annual benefit from the funds equal to 5% of the aggregate directors' fees payable by the funds during the calendar year in which such director's retirement occurs multiplied by the number of years of service (not in excess of ten years of service) completed with respect to any of the funds. Such benefit is payable to each eligible director in quarterly installments for a period of no more than five years. If an eligible director dies after attaining age 65, such director's surviving spouse (if any) will be entitled to receive 50% of the benefits that would have been paid (or would have continued to have been paid) to the director if he had not died. The Retirement Plan is unfunded. The benefits owed to each director are unsecured and subject to the general creditors of the funds. Nations Funds Deferred Compensation Plan Under the terms of the Nations Funds Deferred Compensation Plan for Eligible Trustees (the "Deferred Compensation Plan"), each Trustee may elect, on an annual basis, to defer all or any portion of the annual board fees (including the annual retainer and all attendance fees) payable to the Trustee for that calendar year. An application was submitted to and approved by the SEC to permit deferring Trustees to elect to tie the rate of return on fees deferred pursuant to the Deferred Compensation Plan to one or more of certain investment portfolios of certain funds. Distributions from the deferring Trustees' deferral accounts will be paid in cash, in generally equal quarterly installments over a period of five years beginning on the first day of the first calendar quarter following the later of the quarter in which the Trustee attains age 65 or the quarter in which the Trustee terminates service as Trustee of the funds. The Board, in its sole discretion, may accelerate or extend such payments after a Trustee's termination of service. If a deferring Trustee dies prior to the commencement of the distribution of amounts in his deferral account, the balance of the deferral account will be distributed to his designated beneficiary in a lump sum as soon as practicable after the Trustee's death. If a deferring Trustee dies after the commencement of such distribution, but prior to the complete distribution of his deferral account, the balance of the amounts credited to his deferral account will be distributed to his designated beneficiary over the remaining period during which such amounts were distributable to the Trustee. Amounts payable under the Deferred Compensation Plan are not funded or secured in any way and deferring Trustees have the status of unsecured creditors of the Trust. 33 Beneficial Equity Ownership Information As of the date of this SAI, Trustees and officers of the Trust, as a group, beneficially owned less than 1% of the outstanding shares of the Trust. The table below shows for each Trustee, the amount of Fund equity securities beneficially owned by the Trustee and the aggregate value of all investments in equity securities of the Fund Complex, stated as one of the following ranges: A = $0; B = $1-$10,000; C = $10,001-$50,000; D = $50,001-$100,000; and E = over $100,000.
Beneficial Equity Ownership in Nations Funds Family Calendar Year Ended December 31, 2001 Dollar Range of Equity Securities of Aggregate Dollar Range of Equity Trustee the Fund Securities of Nations Funds Family - --------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------------------------------------- William P. Carmichael A E - --------------------------------------------------------------------------------------------------------------- William H. Grigg A E - --------------------------------------------------------------------------------------------------------------- Thomas F. Keller A E - --------------------------------------------------------------------------------------------------------------- Carl E. Mundy A E - --------------------------------------------------------------------------------------------------------------- Cornelius J. Pings A E - --------------------------------------------------------------------------------------------------------------- Charles B. Walker A A - --------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------------------------------------- Edmund L. Benson, III A E - --------------------------------------------------------------------------------------------------------------- James B. Sommers A E - --------------------------------------------------------------------------------------------------------------- A. Max Walker A E - --------------------------------------------------------------------------------------------------------------- Thomas S. Word, Jr. A E
Ownership of Securities of Adviser, Distributor, or Related Entities None of the Independent Trustees and/or their immediate family members own securities of the adviser, the distributor, or any entity controlling, controlled by, or under common control with the adviser or the distributor. Disclosure of Other Transactions Involving Trustees Mr. Grigg has an individual retirement account and two revocable trust brokerage accounts maintained at Bank of America and for which Bank of America serves as trustee. Mr. Grigg also maintains a brokerage account at Bank of America with a value of approximately $600,000. Mr. Keller has opened a line of credit with Bank of America, the maximum amount under which is $100,000. Mr. Keller also maintains a brokerage account at Bank of America with at value of approximately $50,000. Mr. Word maintains an individual retirement account, managed on a discretionary basis, by Bank of America valued in excess of $300,000. 34 Approval of Advisory and Sub-Advisory Agreements Under Section 15(c) of the Investment Company Act of 1940, the Board is generally required to approve annually the Advisory Agreements for the Fund. At each quarterly meeting the Board reviews the performance information and nature of services provided by the Advisers. At least annually, the Board is provided with quantitative and qualitative information to assist the Board in evaluating whether to approve the continuance of the Advisory Agreements. This information includes comparative fee information, profitability information, performance data, a description of the investment philosophy, experience and senior management of the Advisers, a description of the quality of services provided by the Advisers, as well as information about the financial condition of the Advisers. Before approving an Advisory Agreement with an Adviser, the Board reviewed a detailed profitability analysis of the Adviser based on the fees payable under the Advisory Agreement, including any fee waivers or fee caps, as well as any other relationships between the Fund and the Adviser and affiliates. The Board analyzed the Fund's contractual fees, including investment advisory and sub-advisory fees, administration fees, shareholder servicing fees and Rule 12b-1/distribution fees. The Board reviewed statistical information regarding the performance and expenses of the Fund and was provided with a detailed description of the methodology used to prepare this information. In addition to the performance information for the Fund, the Board reviewed the performance information for a group of funds that was similar to the specific Fund ("Peer Group"), the relevant Lipper category of funds ("Lipper Group"), and an appropriate broad-based market index. The Board also reviewed data relating to the risk of the Fund as compared to its total return. This data showed the statistical measurement of the volatility of the Fund's total return throughout a specific time-period. The Board also reviewed, for the Fund as compared to its Peer Group and Lipper Group, the: (i) combined contractual advisory and administration fees; (ii) net expense ratios; (iii) maximum contractual advisory fees permitted under the Advisory Agreement (excluding fee waivers and/or expense reimbursements); and (iv) projected contractual advisory fees showing the impact of breakpoints, if any, on contractual advisory fees. During its review, the Board considered the advisory fees paid by the Fund as well as the total fees paid to the Adviser for advisory and other services it provides to the Fund. The Board also reviewed information pertaining to the fee structure for the Fund and considered whether alternative fee structures (i.e. breakpoint fee structures, performance-based fees, fee waivers or fee caps) would be more appropriate or reasonable taking into consideration any economies of scale or other efficiencies that accrue from increases in the Fund's asset levels. The Board received and reviewed copies of each Adviser's latest Form ADV. In addition, the Board analyzed each Adviser's background and services that it provides to the Fund. Among other things, the Board reviewed and discussed the investment philosophy and experience of each Adviser. The Board discussed the fact that BA Advisors has established an investment program for the Fund and supervised and evaluated the various sub-adviser(s) who make the day-to-day investment decisions for the Fund. The Board recognized that BA Advisors has expertise in hiring and overseeing the activities of the sub-advisers in the various asset classes and the ability to oversee multiple sub-advisers many of whom have different investment philosophies and styles. The Board also recognized that the primary investment adviser's oversight responsibilities include the monitoring of Fund compliance with federal securities laws and regulations. The Board reviewed the Advisers compliance procedures including the Advisers' internal compliance policies relating to the respective Codes of Ethics and the Advisers' policies on personal trading, internal compliance procedures relating to the Fund's portfolio investments and operations, the process for monitoring and evaluating work performed by third parties, compliance by the distributor on behalf of the Fund with SEC and other regulatory requirements, maintenance of books and records of the Portfolios and recordkeeping systems of the Advisers, and other activities and clients of the Advisers. The Board also received and reviewed information on all SEC and other regulatory inquiries or audits of the Advisers, and a summary of communications from Portfolio shareholders received by the Advisers, the Fund or the Fund's transfer agent since the last approval of the Advisory Agreements. The Board also considered the background and experience of the senior management of each Adviser and the level of attention given to the Fund by senior investment personnel of each Adviser. In addition to the above considerations, the Board also analyzed certain factors relating specifically to sub-advisers. For example, the Board considered each sub-adviser's investment strategies, research capabilities, means 35 for executing portfolio transactions and scope of investment services. The Board analyzed the degree to which each sub-adviser who oversees several funds can manage across asset classes and whether its investment disciplines are driven by proprietary research. The Board reviewed the qualifications, backgrounds and responsibilities of the staff performing investment services for the Fund. The Board also reviewed the sub-adviser's procedures for selecting brokers to execute portfolio transactions for the Fund. More specifically, the Board reviewed the method by which each sub-adviser selects brokers and the factors that the sub-adviser considers prior to selecting a broker to execute portfolio transactions. One such factor was the sub-adviser's consideration of obtaining research services or other soft dollar arrangements through the allocation of Fund brokerage. The Board also considered the standards and performance in seeking best execution, whether and to what extent soft dollar credits are sought and how any such credits are utilized, the benefits from using an affiliated broker, the extent to which efforts are made to recapture transaction costs, and the existence of quality controls applicable to the Fund's portfolios. The Board reviewed the sub-adviser's method for allocating portfolio opportunities among the Fund and other advisory clients. Finally, in evaluating the Advisers, the Board recognized that the Advisers have the size, visibility and resources to attract and retain highly qualified investment professionals, including research, advisory, or marketing personnel. Similarly, the Board reviewed each entity's ability to provide a competitive compensation package, including incentive and retirement plans, to its employees such that each entity would be able to attract and retain high-quality employees. In addition, the Board reviewed recent and anticipated hirings and departures of personnel, the Advisers' policies relating to assignment of personnel devoted to the Fund, and the general nature of the compensation structure applicable to portfolio managers and key personnel. Based on the above analysis, the Board determined that the Advisory Agreements, including the fee levels, were fair and reasonable in light of all relevant circumstances. This determination, was based on the following factors more fully discussed above: (i) level of profits realized by the primary investment adviser from its advisory arrangement with the Fund; (ii) an analysis of advisory fees paid by the Fund compared to other similar funds; (iii) the scope of each Adviser's background and experience; (iv) and the quality of services provided by each of the Advisers. Codes of Ethics The Trust, each Adviser and Stephens have adopted a Code of Ethics which contains policies on personal securities transactions by "access persons," including portfolio managers and investment analysts. These Codes of Ethics substantially comply in all material respects with recently amended Rule 17j-1 under the 1940 Act, which among other things provides that the Board must review each Code of Ethics at least annually. The Codes of Ethics, among other things, prohibit each access person from purchasing or selling securities when such person knows or should have known that, at the time of the transaction, the security (i) was being considered for purchase or sale by the Fund, or (ii) was being purchased or sold by the Fund. For purposes of the Codes of Ethics, an access person means (i) a director or officer of the Trust, (ii) any employee of the Trust (or any company in a control relationship with the Trust) who, in the course of his/her regular duties, obtains information about, or makes recommendations with respect to, the purchase or sale of securities by the Trust, and (iii) any natural person in a control relationship with the Trust who obtains information concerning recommendations made to the Trust regarding the purchase or sale of securities. Fund managers and other persons who assist in the investment process are subject to additional restrictions, including a requirement that they disgorge to the Trust any profits realized on short-term trading (i.e., the purchase/sale or sale/purchase of securities within any 60-day period). The above restrictions do not apply to purchases or sales of certain types of securities, including mutual fund shares, money market instruments and certain U.S. Government securities. To facilitate enforcement, the Codes of Ethics generally require access persons, other than Independent Trustees, submit reports to the Trust's designated compliance person regarding transactions involving securities which are eligible for purchase by the Fund. The Codes of Ethics for the Trust, Advisers and Stephens are on public file with, and are available from, the SEC. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of November ___, 2002, the Trustees and Officers of the Trust as a group owned less than 1% of each class of shares of the Fund. 36 As of November ___, 2002, the name, address and percentage of ownership of each person who may be deemed to be a principal holder (i.e., owns of record or is known by the Trust to own beneficially 5% or more of any class of the Fund's outstanding shares) are shown below: INVESTMENT ADVISORY AND OTHER SERVICES Investment Adviser and Sub-Advisers BA Advisors and BACAP BA Advisors is the primary investment adviser to the Fund. BACAP is the investment sub-adviser to the Fund. BA Advisors also serves as the investment adviser to the other funds of the Trust and the portfolios of Nations Separate Account Trust, a registered investment company that is part of the Nations Funds Family. In addition, BA Advisors serves as the investment adviser to Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Nations Balanced Target Maturity Fund, Inc., each a closed-end diversified management investment company traded on the NYSE. BACAP also serves as the investment sub-adviser to Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., and Nations Balanced Target Maturity Fund, Inc. BA Advisors and BACAP are each wholly-owned subsidiaries of Bank of America, which in turn is a wholly-owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. The respective principal offices of BA Advisors and BACAP are located at One Bank of America Plaza, Charlotte, N.C. 28255. Since 1874, Bank of America and its predecessors have been managing money for foundations, universities, corporations, institutions and individuals. Today, Bank of America affiliates collectively manage in excess of $275 billion, including more than $148 billion in mutual fund assets. It is a company dedicated to a goal of providing responsible investment management and superior service. Bank of America is recognized for its sound investment approaches, which place it among the nation's foremost financial institutions. Bank of America and its affiliates make available a wide range of financial services to its over 6 million customers through over 1700 banking and investment centers. The Fund, in any advertisement or sales literature, may advertise the names, experience and/or qualifications of any Adviser, including the individual portfolio manager(s) of any Fund, or if the Fund is managed by team or committee, it may advertise the names, experience and/or qualifications of any such team or committee member. Investment Advisory and Sub-Advisory Agreements Pursuant to the terms of the Trust's Investment Advisory Agreement, BA Advisors, as investment adviser to the Fund, is responsible for the overall management and supervision of the investment management of the Fund. Pursuant to the terms of the Trust's Investment Sub-Advisory Agreement, BACAP selects and manages the respective investments of the Fund. Each Adviser performs its duties subject at all times to the control of the Board and in conformity with the stated policies of the Fund. The Investment Advisory Agreement and Investment Sub-Advisory Agreements are sometimes referred to as the "Advisory Agreements." The Advisory Agreements generally provide that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of an Adviser's obligations or duties thereunder, or any of its respective officers, directors, employees or agents, the Adviser shall not be subject to liability to the Trust or to any shareholder of the Trust for any act or omission in the course of rendering services thereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 37 Each Advisory Agreement became effective with respect to the Fund after approval by the Board, and after an initial two year period, continues from year to year, provided that such continuation of the Advisory Agreement is specifically approved at least annually by the Trust's Board, including its Independent Trustees. The respective Advisory Agreement terminates automatically in the event of its assignment, and is terminable with respect to the Fund at any time without penalty by the Trust (by vote of the Board or by vote of a majority of the outstanding voting securities of the Fund) or by BA Advisors on 60 days' written notice. The Fund pays BA Advisors an annual fee for its investment advisory services, as set forth in the Investment Advisory Agreements. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors, in turn, from these fees it receives, pays investment sub-advisers for the services they provide to the Fund based on the percentage of the average daily net assets of the Fund, as set forth in the Investment Sub-Advisory Agreements. BA Advisors also may pay amounts from its own assets to Stephens or to selling or servicing agents for services they provide. Advisory Fee Rates The maximum advisory fee rate payable by the Fund is shown in the Fund's prospectuses. Advisory and Sub-Advisory Fees Paid Because the Fund is a new series with no prior operating history, it has not yet paid any advisory or sub-advisory fees. Co-Administrators and Sub-Administrator Co-Administrators Stephens and BA Advisors serve as Co-Administrators of the Fund. The Co-Administrators serve under a Co-Administration Agreement which provides that the Co-Administrators may receive, as compensation for their services, fees, computed daily and paid monthly, at the annual rate of: 0.23% of the Fund's average daily net assets. BA Advisors also may pay amounts from its own assets to Stephens or to selling or servicing agents for services they provide. Pursuant to the Co-Administration Agreement, Stephens has agreed to, among other things, (i) maintain office facilities for the Fund, (ii) furnish statistical and research data, data processing, clerical, and internal executive and administrative services to the Trust, (iii) furnish corporate secretarial services to the Trust, including coordinating the preparation and distribution of materials for Board meetings, (iv) coordinate the provision of legal advice to each the Trust with respect to regulatory matters, (v) coordinate the preparation of reports to the Fund's shareholders and the SEC, including annual and semi-annual reports, (vi) coordinate the provision of services to the Trust by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects of the Trust's operations. Stephens bears all expenses incurred in connection with the performance of its services. Also, pursuant to the Co-Administration Agreement, BA Advisors has agreed to, among other things, (i) provide accounting and bookkeeping services for the Fund, (ii) compute the Fund's net asset value and net income, (iii) accumulate information required for the Trust's reports to shareholders and the SEC, (iv) prepare and file the Trust's federal and state tax returns, (v) perform monthly compliance testing for the Trust, and (vi) prepare and furnish the Trust monthly broker security transaction summaries and transaction listings and performance information. BA Advisors bears all expenses incurred in connection with the performance of its services. The Co-Administration Agreement may be terminated by a vote of a majority of the Trustees, by Stephens or by BA Advisors, respectively, on 60 days' written notice without penalty. The Co-Administration Agreements are not assignable without the written consent of the other party. Furthermore, the Co-Administration Agreement provides that Stephens and BA Advisors shall not be liable to the Fund or to its shareholders except in the case of willful misfeasance, bad faith, gross negligence or reckless disregard of duty on the part of either Stephens or BA Advisors. 38 Sub-Administrator BNY serves as Sub-Administrator for the Fund pursuant to a Sub-Administration Agreement. Pursuant to its terms, BNY assists Stephens and BA Advisors in supervising, coordinating and monitoring various aspects of the Fund's administrative operations. For providing such services, BNY is entitled to receive a monthly fee from Stephens and BA Advisors based on an annual rate of the Fund's average daily net assets, as shown below. First $500 million 0.000550 Next $500 million 0.000450 Next $500 million 0.000250 Next $500 million 0.000150 On excess (*$2.0 billion) 0.000050 Co-Administration and Sub-Administration Fees Paid Because the Fund is a new series with no prior operating history, it has not yet paid any co-administration or sub-administration fees. 12b-1 Plans The Trust has adopted a Rule 12b-1, or distribution plan, for the Investor A, Investor B, Investor C Shares of the Fund. See "Capital Stock--Description of the Trust's Shares". With respect to the Fund's Investor A Shares, the Trust has adopted a combined distribution and shareholder servicing plan. The Investor A Distribution and Shareholder Servicing Plan providesthat the Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide or to Servicing Agents for shareholder services they may provide, up to 0.25% (on an annualized basis) of the average daily net asset value of the Fund. With respect to the Fund's Investor B Shares, the Trust has adopted a distribution plan. The Investor B Distribution Plan provides that the Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.75% (on an annualized basis) of the average daily net asset value of the Investor B Shares of the Fund. Stephens has entered into an arrangement whereby sales commissions payable to broker/dealers with respect to sales of Investor B Shares of the Fund are financed by an unaffiliated third party lender. Under this financing arrangement, Stephens has assigned certain amounts that it is entitled to receive pursuant to the Investor B Distribution Plan to the third party lender, as reimbursement and consideration for these payments. With respect to the Fund's Investor C Shares, the Trust has adopted a distribution plan. The Investor C Distribution Plan provides that the Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.75% (on an annualized basis) of the average daily net asset value of the Investor C Shares of the Fund. Payments under the Investor A Distribution and Servicing Plan, Investor B Distribution Plan and Investor C Distribution Plan generally may be made with respect to the following: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. * denotes greater than 39 All of the Distribution Plans may be terminated with respect to their respective shares by vote of a majority of the Trustees, including a majority of the Independent Board Members, or by vote of a majority of the holders of the outstanding voting securities of the appropriate share class. Any change in a 12b-1 Plan that would increase materially the distribution expenses paid by the appropriate share class requires shareholder approval. Expenses incurred by the Distributor pursuant to a Distribution Plan in any given year may exceed the sum of the fees received under the Distribution Plan. Any such excess may be recovered by the Distributor in future years so long as the Distribution Plan is in effect. If the Distribution Plan were terminated or not continued, the Fund would not be contractually obligated to pay the Distributor for any expenses not previously reimbursed by the Fund. The Fund participates in joint distribution activities with other funds in the Nations Funds Family. The fees paid under each Distribution Plan adopted by the Fund may be used to finance the distribution of the shares of other funds in the Nations Funds Family. Such distribution costs are allocated based on the relative net asset size of the respective funds. Because the Fund is a new series with no prior operating history, it has not yet paid any distribution fees. Expenses The Distributor and Co-Administrators furnish, without additional cost to the Trust, the services of the Treasurer and Secretary of the Trust and such other personnel (other than the personnel of an Adviser) as are required for the proper conduct of the Trust's affairs. The Distributor bears the incremental expenses of printing and distributing prospectuses used by the Distributor or furnished by the Distributor to investors in connection with the public offering of the Trust's shares and the costs of any other promotional or sales literature, except that to the extent permitted under the Distribution Plans of the Fund, sales-related expenses incurred by the Distributor may be reimbursed by the Trust. The Trust pays or causes to be paid all other expenses of the Trust, including, without limitation: the fees of the Adviser, the Distributor, Co-Administrators and Sub-Administrator; the charges and expenses of any registrar, any custodian or depository appointed by the Trust for the safekeeping of its cash, Fund securities and other property, and any stock transfer, dividend or accounting agent or agents appointed by the Trust; brokerage commissions chargeable to the Trust in connection with Fund securities transactions to which the Trust is a party; all taxes, including securities issuance and transfer taxes; corporate fees payable by the Trust to federal, state or other governmental agencies; all costs and expenses in connection with the registration and maintenance of registration of the Trust and Fund's shares with the SEC and various states and other jurisdictions (including filing fees, legal fees and disbursements of counsel); the costs and expenses of typesetting prospectuses and statements of additional information of the Trust (including supplements thereto) and periodic reports and of printing and distributing such prospectuses and statements of additional information (including supplements thereto) to the Trust's shareholders; all expenses of shareholders and Trustee meetings and of preparing, printing and mailing proxy statements and reports to shareholders; fees and travel expenses of directors or director members of any advisory board or committee; all expenses incident to the payment of any dividend or distribution, whether in shares or cash; charges and expenses of any outside service used for pricing of the Trust's shares; fees and expenses of legal counsel and of independent auditors in connection with any matter relating to the Trust; membership dues of industry associations; interest payable on Trust borrowings; postage and long-distance telephone charges; insurance premiums on property or personnel (including officers and directors) of the Trust which inure to its benefit; extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto); and all other charges and costs of the Trust's operation unless otherwise explicitly assumed by the Adviser), the Co-Administrators or Sub-Administrator. Expenses of the Trust which are not attributable to the operations of any class of shares or Fund are pro-rated among all classes of shares or Fund based upon the relative net assets of each class or Fund. Expenses which are not directly attributable to a specific class of shares but are attributable to a specific Fund are prorated among all the classes of shares of such Fund based upon the relative net assets of each such class of shares. Expenses which are directly attributable to a class of shares are charged against the income available for distribution as dividends to such class of shares. 40 Other Service Providers Transfer Agents and Custodian PFPC Inc. is located at 400 Bellevue Parkway, Wilmington, Delaware 19809, and acts as Transfer Agent for the Fund's shares. Under the Transfer Agency Agreement, the Transfer Agent maintains shareholder account records for the Trust, handles certain communications between shareholders and the Trust, and distributes dividends and distributions payable by the Trust to shareholders, and produces statements with respect to account activity for the Trust and its shareholders for these services. The Transfer Agent receives a monthly fee computed on the basis of the number of shareholder accounts that it maintains for the Trust during the month and is reimbursed for out-of-pocket expenses. Bank of America serves as Sub-Transfer Agent for the Fund's Primary A Shares. BNY, 101 Barclay Street, New York, N.Y. 10286 serves as Custodian for the Fund's assets. As Custodian, BNY maintains the Fund's securities, cash and other property, delivers securities against payment upon sale and pays for securities against delivery upon purchase, makes payments on behalf of the Fund for payments of dividends, distributions and redemptions, endorses and collects on behalf of the Fund all checks, and receives all dividends and other distributions made on securities owned by the Fund. With respect to foreign custody activities, the SEC has amended Rule 17f-5 under the 1940 Act and adopted Rule 17f-7 to permit the Board to delegate certain foreign custody matters to foreign custody managers and to modify the criteria applied in the selection process. Accordingly, BNY serves as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement, under which the Board retains the responsibility for selecting foreign compulsory depositories, although BNY agrees to make certain findings with respect to such depositories and to monitor such depositories. The Board has delegated the responsibility for selecting foreign compulsory depositories to BA Advisors. Independent Accountants The Trust issues unaudited financial information semi-annually and audited financial statements annually. Because the Fund is a new series with no prior operating history, it has not yet issued any shareholder reports. The Board has selected PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036, as the Trust's independent accountant to audit the Trust's books and review its tax returns for the fiscal year ended March 31, 2003. Counsel Morrison & Foerster LLP serves as legal counsel to the Trust. Its address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006. BROKERAGE ALLOCATION AND OTHER PRACTICES General Brokerage Policy, Brokerage Transactions and Broker Selection Subject to policies established by the Board, the Adviser (which in this context refers to the investment sub-adviser(s) who make the day to day decisions for the Fund) is responsible for decisions to buy and sell securities for the Fund, for the selection of broker/dealers, for the execution of the Fund's securities transactions, and for the allocation of brokerage in connection with such transactions. The Adviser's primary consideration in effecting a security transaction is to obtain the best net price and the most favorable execution of the order. Purchases and sales of securities on a securities exchange are effected through brokers who charge negotiated commissions for their services. Orders may be directed to any broker to the extent and in the manner permitted by applicable law. In the over-the-counter market, securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without stated commissions, although the price of a security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. 41 In placing orders for portfolio securities of the Fund, the Adviser gives primary consideration to obtaining the most favorable price and efficient execution. This means that the Adviser will seek to execute each transaction at a price and commission, if any, which provide the most favorable total cost or proceeds reasonably attainable in the circumstances. In seeking such execution, the Adviser will use its best judgment in evaluating the terms of a transaction, and will give consideration to various relevant factors, including, without limitation, the size and type of the transaction, the nature and character of the market for the security, the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities of the broker/dealer, the reputation, reliability, experience and financial condition of the broker/dealer, the value and quality of the services rendered by the broker/dealer in this instant and other transactions, and the reasonableness of the spread or commission, if any. Research services received from broker/dealers supplement the Adviser's own research and may include the following types of information: statistical and background information on industry groups and individual companies; forecasts and interpretations with respect to U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on political developments; Fund management strategies; performance information on securities and information concerning prices of securities; and information supplied by specialized services to the Adviser and to the Board with respect to the performance, investment activities and fees and expenses of other mutual funds. Such information may be communicated electronically, orally or in written form. Research services may also include the providing of equipment used to communicate research information, the arranging of meetings with management of companies and the providing of access to consultants who supply research information. The outside research is useful to the Adviser since, in certain instances, the broker/dealers utilized by the Adviser may follow a different universe of securities issuers and other matters than the Adviser's staff can follow. In addition, this research provides the Adviser with a different perspective on financial markets, even if the securities research obtained relates to issues followed by the Adviser. Research services which are provided to the Adviser by broker/dealers are available for the benefit of all accounts managed or advised by the Adviser. In some cases, the research services are available only from the broker/dealer providing such services. In other cases, the research services may be obtainable from alternative sources. The Adviser is of the opinion that because the broker/dealer research supplements rather than replaces its research, the receipt of such research does not tend to decrease its expenses, but tends to improve the quality of its investment advice. However, to the extent that the Adviser would have purchased any such research services had such services not been provided by broker/dealers, the expenses of such services to the Adviser could be considered to have been reduced accordingly. Certain research services furnished by broker/dealers may be useful to the Adviser with clients other than the Fund. Similarly, any research services received by the Adviser through the placement of transactions of other clients may be of value to the Adviser in fulfilling its obligations to the Fund. The Adviser is of the opinion that this material is beneficial in supplementing its research and analysis; and, therefore, it may benefit the Trust by improving the quality of the Adviser's investment advice. The advisory fees paid by the Trust are not reduced because the Adviser receives such services. Under Section 28(e) of the 1934 Act, the Adviser shall not be "deemed to have acted unlawfully or to have breached its fiduciary duty" solely because under certain circumstances it has caused the account to pay a higher commission than the lowest available. To obtain the benefit of Section 28(e), the Adviser must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided...viewed in terms of either that particular transaction or its overall responsibilities with respect to the accounts as to which it exercises investment discretion and that the services provided by a broker/dealer provide an adviser with lawful and appropriate assistance in the performance of its investment decision making responsibilities." Accordingly, the price to the Fund in any transaction may be less favorable than that available from another broker/dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Some broker/dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Fund. Commission rates are established pursuant to negotiations with the broker/dealers based on the quality and quantity of execution services provided by the broker/dealer in the light of generally prevailing rates. On exchanges on which commissions are negotiated, the cost of transactions may vary among different broker/dealers. Transactions on foreign stock exchanges involve payment of brokerage commissions which are generally fixed. Transactions in both foreign and domestic over-the-counter markets are generally principal transactions with dealers, and the costs of such transactions involve dealer spreads rather than brokerage commissions. With respect to over- 42 the-counter transactions, the Adviser, where possible, will deal directly with dealers who make a market in the securities involved except in those circumstances in which better prices and execution are available elsewhere. In certain instances there may be securities which are suitable for more than one Fund as well as for one or more of the other clients of the Adviser. Investment decisions for the Fund and for the Adviser's other clients are made with the goal of achieving their respective investment objectives. A particular security may be bought or sold for only one client even though it may be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when a number of accounts receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. In some cases, this policy could have a detrimental effect on the price or volume of the security in a particular transaction as far as the Fund is concerned. The Fund may participate, if and when practicable, in bidding for the purchase of portfolio securities directly from an issuer in order to take advantage of the lower purchase price available to members of a bidding group. The Fund will engage in this practice, however, only when the Adviser, in its sole discretion, believes such practice to be otherwise in the Fund's interests. The Trust will not execute portfolio transactions through, or purchase or sell portfolio securities from or to the Distributor, the Adviser, the Administrator, the Co-Administrator or their affiliates, acting as principal (including repurchase and reverse repurchase agreements), except to the extent permitted by applicable law, regulation or order. In addition, the Trust will not give preference to Bank of America or any of its affiliates, with respect to such transactions or securities. However, the Adviser is authorized to allocate purchase and sale orders for portfolio securities to certain broker/dealers and financial institutions, including, in the case of agency transactions, broker/dealers and financial institutions which are affiliated with Bank of America. To the extent that the Fund executes any securities trades with an affiliate of Bank of America, the Fund does so in conformity with Rule 17e-1 under the 1940 Act and the procedures that the Fund has adopted pursuant to the rule. In this regard, for each transaction, the Board will determine that: (a) the transaction resulted in prices for and execution of securities transactions at least as favorable to the particular Fund as those likely to be derived from a non-affiliated qualified broker/dealer; (b) the affiliated broker/dealer charged the Fund commission rates consistent with those charged by the affiliated broker/dealer in similar transactions to clients comparable to the Fund and that are not affiliated with the broker/dealer in question; and (c) the fees, commissions or other remuneration paid by the Fund did not exceed 2% of the sales price of the securities if the sale was effected in connection with a secondary distribution, or 1% of the purchase or sale price of such securities if effected in other than a secondary distribution. Certain affiliates of Bank of America Corporation, such as its subsidiary banks may have deposit, loan or commercial banking relationships with the corporate users of facilities financed by industrial development revenue bonds or private activity bonds purchased by the Fund. Bank of America or certain of its affiliates may serve as trustee, custodian, tender agent, guarantor, placement agent, underwriter, or in some other capacity, with respect to certain issues of municipal securities. Under certain circumstances, the Fund may purchase municipal securities from a member of an underwriting syndicate in which an affiliate of Bank of America is a member. The Trust has adopted procedures pursuant to Rule 10f-3 under the 1940 Act, and intend to comply with the requirements of Rule 10f-3, in connection with any purchases of municipal securities that may be subject to the Rule. Particularly given the breadth of the Adviser's investment management activities, investment decisions for the Fund are not always made independently from those for the other funds, or other investment companies and accounts advised or managed by the Adviser. When a purchase or sale of the same security is made at substantially the same time on behalf of one or more of the funds and another investment portfolio, investment company, or account, the transaction will be averaged as to price and available investments allocated as to amount, in a manner which the Adviser believes to be equitable to the Fund and such other investment portfolio, investment company or account. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or sold by the Fund. To the extent permitted by law, the Adviser may aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for other investment portfolios, investment companies, or accounts in executing transactions. 43 Aggregate Brokerage Commissions Because the Fund is a new series with no prior operating history, it has not yet paid any brokerage commissions. Brokerage Commissions Paid to Affiliates In certain instances the Fund pays brokerage commissions to broker/dealers that are affiliates of Bank of America. As indicated above, all such transactions involving the payment of brokerage commissions are done in compliance with Rule 17e-1 under the 1940 Act. Because the Fund is a new series with no prior operating history, it has not paid any brokerage commissions to affiliates. Directed Brokerage The Fund or the Adviser, through an agreement or understanding with a broker/dealer, or otherwise through an internal allocation procedure, may direct, subject to applicable legal requirements, the Fund's brokerage transactions to a broker/dealer because of the research services it provides the Fund or the Adviser. Because the Fund is a new series with no prior operating history, it has not directed any brokerage. Securities of Regular Broker/Dealers In certain cases, the Fund as part of its principal investment strategies, or otherwise as a permissible investment, will invest in the common stock or debt obligations of the regular broker/dealers that the Adviser uses to transact brokerage for the Nations Funds Family. Because the Fund is a new series with no prior operating history, it has not yet invested in any in any securities. Monies Paid to Broker/Dealers from the Adviser's or Distributor's Profit In addition to payments received from the Fund, Selling or Servicing Agents may receive significant payments from the Adviser or Distributor, or their affiliates, in connection with the sale of Fund shares. This information is provided in order to satisfy certain requirements of Rule 10b-10 under the 1934 Act, which provides that broker/dealers must provide information to customers regarding any remuneration that a broker receives in connection with a sales transaction. CAPITAL STOCK Description of the Trust's Shares The Fund offers shares in the following classes: Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares. About the Trust's Capital Stock The Trust's Amended and Restated Declaration of Trust permits it to issue an unlimited number of full and fractional shares of beneficial interest of the Fund, without par value, and to divide or combine the shares of any series into a greater or lesser number of shares of that Fund without thereby changing the proportionate beneficial interests in that Fund and to divide such shares into classes. Each share of a class of the Fund represents an equal proportional interest in the Fund with each other share in the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Board. However, different share classes of the Fund pay different distribution amounts, because each share class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. 44 Restrictions on Holding or Disposing of Shares. There are no restrictions on the right of shareholders to retain or dispose of the Fund's shares, other than the possible future termination of the Fund. The Fund may be terminated by reorganization into another mutual fund or by liquidation and distribution of the assets of the affected Fund. Unless terminated by reorganization or liquidation, the Fund will continue indefinitely. Shareholder Liability. The Trust is organized under Delaware law, which provides that shareholders of a business trust are entitled to the same limitations of personal liability as shareholders of a corporation organized under Delaware law. Effectively, this means that a shareholder of the Fund will not be personally liable for payment of the Fund's debts except by reason of his or her own conduct or acts. In addition, a shareholder could incur a financial loss on account of the Fund obligation only if the Fund itself had no remaining assets with which to meet such obligation. We believe that the possibility of such a situation arising is extremely remote. Dividend Rights. The shareholders of the Fund are entitled to receive any dividends or other distributions declared for such Fund. No shares have priority or preference over any other shares of the same Fund with respect to distributions. Distributions will be made from the assets of the Fund, and will be paid ratably to all shareholders of the Fund (or class) according to the number of shares of such Fund (or class) held by shareholders on the record date. The amount of income dividends per share may vary between separate share classes of the same Fund based upon differences in the way that expenses are allocated between share classes pursuant to a multiple class plan. Voting Rights. Shareholders have the power to vote only as expressly granted under the 1940 Act or under Delaware business trust law. Shareholders have no independent right to vote on any matter, including the creation, operation, dissolution or termination of the Trust. Shareholders have the right to vote on other matters only as the Board authorizes. Currently, the 1940 Act requires that shareholders have the right to vote, under certain circumstances, to: (i) elect Trustees; (ii) approve investment advisory agreements and principal underwriting agreements; (iii) approve a change in subclassification of the Fund; (iv) approve any change in fundamental investment policies; (v) approve a distribution plan under Rule 12b-1 under the 1940 Act; and (vi) to terminate the independent accountant. With respect to matters that affect one class but not another, shareholders vote as a class; for example, the approval of a distribution plan applicable to that class. Subject to the foregoing, all shares of the Trust have equal voting rights and will be voted in the aggregate, and not by Fund, except where voting by Fund is required by law or where the matter involved only affects one Fund. For example, a change in the Fund's fundamental investment policy affects only one Fund and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an Advisory Agreement, since it only affects one Fund, is a matter to be determined separately by the Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to the Fund. Shareholders are entitled to one vote for each whole share held a proportional fractional vote for each fractional vote held, on matters on which they are entitled to vote. Fund shareholders do not have cumulative voting rights. The Trust is not required to hold, and has no present intention of holding, annual meetings of shareholders. Liquidation Rights. In the event of the liquidation or dissolution of the Trust or the Fund, shareholders of the Fund are entitled to receive the assets attributable to the relevant class of shares of the Fund that are available for distribution, and a distribution of any general assets not attributable to a particular investment portfolio that are available for distribution in such manner and on such basis as the Board may determine. Preemptive Rights. There are no preemptive rights associated with Fund shares. Conversion Rights. Shareholders have the right, which is subject to change by the Board, to convert or "exchange" shares of one class for another, as outlined, and subject to certain conditions set forth, in the Fund's prospectuses. Redemptions. The Fund's dividend, distribution and redemption policies can be found in its prospectus under the headings "About your investment--Information for investors--Buying, selling and exchanging shares" and "About your investment--Information for investors--Distributions and taxes." However, the Board may suspend the 45 right of shareholders to redeem shares when permitted or required to do so by law, or compel redemptions of shares in certain cases. Sinking Fund Provisions. The Trust has no sinking fund provisions. Calls or Assessment. All Fund shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by the Trust. PURCHASE, REDEMPTION AND PRICING OF SHARES Purchase, Redemption and Exchange An investor may purchase, redeem and exchange shares in the Fund utilizing the methods, and subject to the restrictions, described in the Fund's prospectuses. The following information supplements that which can be found in the Fund's prospectuses. Purchases and Redemptions The Fund has authorized one or more broker-dealers to accept purchase and redemption orders on the Fund's behalf. These broker-dealers are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker-dealer, or if applicable a broker-dealer's authorized designee, accepts the order. Customer orders will be priced at the Fund's net asset value next computed after they are accepted by an authorized broker-dealer or the broker's authorized designee. The Trust may redeem shares involuntarily to reimburse the Fund for any loss sustained by reason of the failure of a shareholder to make full payment for Shares purchased by the shareholder or to collect any charge relating to a transaction effected for the benefit of a shareholder which is applicable to Shares as provided in the related prospectuses from time to time. The Trust also may make payment for redemptions in readily marketable securities or other property if it is appropriate to do so in light of the Trust's responsibilities under the 1940 Act. Under the 1940 Act, the Fund may suspend the right of redemption or postpone the date of payment for Shares during any period when (a) trading on the Exchange is restricted by applicable rules and regulations of the SEC; (b) the Exchange is closed for other than customary weekend and holiday closings; (c) the SEC has by order permitted such suspension; (d) an emergency exists as determined by the SEC. (The Fund may also suspend or postpone the recordation of the transfer of their shares upon the occurrence of any of the foregoing conditions). The Trust has elected to be governed by Rule 18f-1 under the 1940 Act, as a result of which the Fund is obligated to redeem shares, with respect to any one shareholder during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of the period. Offering Price The share price of the Fund is based on the Fund's net asset value per share, which is calculated for each class of shares as of the close of regular trading on the NYSE (which is usually 4:00 p.m.) on each day the Fund is open for business, unless a Board determines otherwise. The value of the Fund's portfolio securities for which a market quotation is available is determined in accordance with the Trust's valuation procedures. In general terms, the valuation procedures provide that: (i) exchange traded securities are valued at the last reported sales price on their primary exchange or the Nasdaq System, as reported by a reputable independent pricing service approved by the Adviser; (ii) non-exchange traded securities are valued at the mean between the latest bid and asked prices based upon quotes furnished by the appropriate market makers; (iii) debt securities are valued at prices obtained from a reputable independent pricing service approved by the Adviser. The service may value the debt securities relying not only on quoted prices, but also upon a consideration of additional factors such as yield, type of issue, coupon rate, and maturity; (iv) money market instruments are valued at amortized cost; (v) repurchase agreements are valued at a price equal to the amount of the cash invested in the repurchase agreement at the time of valuation; (vi) financial futures are valued at the latest reported sales price, forward foreign currency contracts are valued using market quotations from a widely used 46 quotation system at the current cost of covering or off-setting the contract, exchange traded options are valued at the latest reported sales price and over-the-counter options will be valued using broker-dealer market quotations; and (vii) shares of open-end investment companies are valued at the latest net asset valued reported by the company. Securities for which market quotations are not readily available are valued at "fair value" as determined in good faith by the Board of the Adviser's valuation committee. In general, any one or more of the following factors may be taken into account in determining fair value: the fundamental analytical data relating to the security; the value of other financial instruments, including derivative securities, traded on other markets or among dealers; trading volumes on markets, exchanges, or among dealers; values of baskets of securities traded on other markets; changes in interest rates; observations from financial institutions; government (domestic or foreign) actions or pronouncements; other news events; information as to any transactions or offers with respect to the security; price and extent of public trading in similar securities of the issuer or comparable companies; nature and expected duration of the event, if any, giving rise to the valuation issue; pricing history of the security; the relative size of the position in the portfolio; and other relevant information. With respect to securities traded on foreign markets, the following factors also may be relevant: the value of foreign securities traded on other foreign markets; ADR trading; closed-end fund trading; foreign currency exchange activity; and the trading of financial products that are tied to baskets of foreign securities, such as WEBS. The Board has determined, and the valuation procedures provide, that in certain circumstances it may be necessary to use an alternative valuation method, such as in-kind redemptions with affiliated benefit plans where the Department of Labor requires that valuation to be done in accordance with Rule 17a-7 of the 1940 Act. INFORMATION CONCERNING TAXES The following information supplements and should be read in conjunction with the section in each prospectus under the hearing "About you investment--Information for investors--Distributions and taxes." The prospectuses generally describe the federal income tax treatment of distributions by the Fund. This section of the SAI includes additional information concerning federal income and certain state taxes. It is based on the Code, applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this SAI and all of which are subject to change, including changes with retroactive effect. The following discussion does not address any state, local or foreign tax matters. A shareholder's tax treatment may vary depending upon his or her particular situation. Except as otherwise noted, a shareholder may be subject to special rules not discussed below if he or she is a certain kind of shareholder, including, but not limited to: an insurance company; a tax-exempt organization; a holder of Fund shares through a tax-advantaged account, such as a 401(k) Plan Account or an Individual Retirement Account ("IRA"); a financial institution or broker-dealer; a person who is neither a citizen nor resident of the United States or entity that is not organized under the laws of the United States or political subdivision thereof; a holder of Fund shares as part of a hedge, straddle or conversion transaction; a person that does not hold Fund shares as a capital asset or a shareholder subject to the federal alternative minimum tax. The Trust has not requested and will not request an advance ruling from the IRS as to the federal income tax matters described below. The IRS could adopt positions contrary to that discussed below and such positions could be sustained. In addition, the foregoing discussion and the discussions in the prospectuses applicable to each shareholder address only some of the federal income tax considerations generally affecting investments in the Fund. Prospective shareholders are urged to consult with their own tax advisors and financial planners as to the particular tax consequences to them of an investment in the Fund, including the applicability and effect of any state, local or foreign laws, and the effect of possible changes in applicable tax laws. General The Trust intends to continue to qualify the Fund as a "regulated investment company" under Subchapter M of the Code, as long as such qualification is in the best interests of the Fund's shareholders. The Fund will be treated as a separate entity for federal income tax purposes. Thus, the provisions of the Code applicable to regulated investment companies generally will apply separately to the Fund, rather than to the Trust as a whole. Furthermore, the Fund will separately determine its income, gains and expenses for federal income tax purposes. 47 In order to qualify as a regulated investment company under the Code, the Fund must, among other things, (a) derive at least 90% of its annual gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gains from options, futures or forward contracts) attributable to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the fair market value of its assets consists of cash, government securities and other securities limited in respect of any one issuer to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund's assets consists of the securities of any one issuer (other than U.S. Government obligations and the securities of other regulated investment companies), or in two or more issuers that the Fund controls and are engaged in the same or similar trades or businesses. The qualifying income and diversification requirements applicable to the Fund may limit the extent to which it can engage in transactions in options, futures contracts, forward contracts and swap agreements. In addition, the Fund generally must distribute to its shareholders at least 90% of its (a) "investment company taxable income," which generally includes its ordinary income and net short-term capital gain, and (b) net tax-exempt income earned in each taxable year. As long as the Fund distributes all of its investment company taxable income and net capital gain to its shareholders, it generally will not be subject to federal income taxation on such income and gain. For this purpose, the Fund generally must make the distributions in the same year that it realizes the income and gain. However, in certain circumstances, the Fund may make the distributions in the following taxable year. Furthermore, if the Fund declares a distribution to shareholders of record in October, November or December of one year and pays the distribution by January 31 of the following year, the Fund and the shareholders will be treated as if the Fund paid the distribution by December 31 of the first taxable year. The Fund intends to distribute its net income and gain in a timely manner to maintain its status as a regulated investment company and eliminate Fund-level federal income taxation of such income and gain. However, no assurance can be given that the Fund will not be subject to federal income taxation. The Fund is permitted to carry forward a net capital loss for any year to offset its capital gains, if any, realized during the eight years following the year of the loss. The Fund's capital loss carryover is treated as a short-term capital loss in the year to which it is carried. If future capital gains are offset by carried-forward capital losses, such future capital gains are not subject to Fund-level federal income taxation, regardless of whether they are distributed to shareholders. Accordingly, the Fund do not expect to distribute such capital gains. The Fund cannot carry back or carry forward any net operating losses. Equalization Accounting The Fund may use the so-called "equalization accounting method" to allocate a portion of its "earnings and profits," as determined for federal income tax purposes (generally, the Fund's undistributed net investment income and realized capital gains with certain adjustments), to redemption proceeds for such purposes. This method permits the Fund to achieve more balanced distributions for both continuing and redeeming shareholders. Although using this method will not affect the Fund's total returns, it may reduce the amount that the Fund would otherwise distribute to continuing shareholders by reducing the effect of purchases and redemptions of Fund shares on Fund distributions to shareholders. However, the IRS may not have expressly sanctioned the equalization accounting method used by the Fund. Therefore, the use of the method may be subject to IRS scrutiny. Excise Tax A 4% nondeductible excise tax will be imposed on the Fund's net income and gains (other than to the extent of its tax-exempt interest income, if any) to the extent it does not meet certain minimum distribution requirements with respect to such income and gains by the end of each calendar year. The Fund intends to actually or be deemed to distribute substantially all of its net income and gains, if any, by the end of each calendar year and, thus, expects not to be subject to the excise tax. However, no assurance can be given that the Fund will not be subject to the excise tax. 48 Taxation of Fund Investments In general, if the Fund realizes gains or losses on the sale of portfolio securities, such gains or losses will be capital gains or losses and long-term capital gains or losses if the Fund has held the disposed securities for more than one year at the time of disposition. If the Fund purchases a debt obligation with original issue discount, generally at a price less than its principal amount ("OID"), such as a zero-coupon bond, the Fund may be required to annually include in its taxable income a portion of the OID as ordinary income, even though the Fund will not receive cash payments for such discount until maturity or disposition of the obligation. A portion of the OID includible in income with respect to certain high-yield corporate debt securities may be treated as a dividend for federal income tax purposes. Gains recognized on the disposition of a debt obligation (including a tax-exempt obligation) purchased by the Fund at a market discount, generally at a price less than its principal amount, generally will be treated as ordinary income to the extent of the portion of market discount which accrued, but was not previously recognized pursuant to an available election, during the term that the Fund held the debt obligation. If an option granted by the Fund lapses or is terminated through a closing transaction, such as a repurchase by the Fund of the option from its holder, the Fund will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Fund in the closing transaction. Some realized capital losses may be deferred if they result from a position that is part of a "straddle," discussed below. If securities are sold by the Fund pursuant to the exercise of a call option granted by it, the Fund will add the premium received to the sale price of the securities delivered in determining the amount of gain or loss on the sale. If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund will subtract the premium received from its cost basis in the securities purchased. Under Section 1256 of the Code, the Fund will be required to "mark to market" its positions in "Section 1256 contracts," which generally include regulated futures contracts, certain foreign currency contracts, and non-equity, listed options but generally exclude securities futures (as defined in Section 3(a)(55)(A) of the 1934 Act. In this regard, Section 1256 contracts will be deemed to have been sold at market value at the end of each taxable year. Under Section 1256 of the Code, 60% of any net gain or loss realized on all dispositions of Section 1256 contracts, including deemed dispositions under the "mark-to-market" rule, generally will be treated as long-term capital gain or loss, and the remaining 40% will be treated as short-term capital gain or loss. Transactions that qualify as designated hedges are excepted from the mark-to-market rule and the "60%/40%" rule. Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount and timing of recognition of the Fund's income. Under future Treasury Regulations, any such transactions that are not directly related to the Fund's investments in stock or securities (or its options contracts or futures contracts with respect to stock or securities) may have to be limited in order to enable the Fund to satisfy the 90% income test described above. If the net foreign exchange loss for a year exceeds the Fund's investment company taxable income (computed without regard to such loss), the resulting ordinary loss for such year will not be deductible by the Fund or its shareholders in future years. Offsetting positions held by the Fund involving certain financial forward, futures or options contracts may be considered, for federal income tax purposes, to constitute "straddles." "Straddles" are defined to include "offsetting positions" in actively traded personal property. The tax treatment of "straddles" is governed by Section 1092 of the Code which, in certain circumstances, overrides or modifies the provisions of Section 1256. If the Fund is treated as entering into "straddles" by engaging in certain financial forward, futures or option contracts, such straddles could be characterized as "mixed straddles" if the futures, forward, or option contracts comprising a part of such straddles are governed by Section 1256 of the Code, described above. The Fund may make one or more elections with respect to "mixed straddles." Depending upon which election is made, if any, the results with respect to the Fund may differ. Generally, to the extent the straddle rules apply to positions established by the Fund, losses realized by the Fund may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle and the conversion transaction rules, short-term capital loss on straddle positions may be 49 recharacterized as long-term capital loss, and long-term capital gain may be characterized as short-term capital gain or ordinary income. If the Fund enters into a "constructive sale" of any appreciated position in stock, a partnership interest, or certain debt instruments, the Fund must recognize gain (but not loss) with respect to that position. For this purpose, a constructive sale occurs when the Fund enters into one of the following transactions with respect to the same or substantially identical property: (i) a short sale; (ii) an offsetting notional principal contract; or (iii) a futures or forward contract, or (iv) other transactions identified in future Treasury Regulations. The amount of long-term capital gain the Fund may recognize from derivative transactions is limited with respect to certain pass-through entities. The amount of long-term capital gain is limited to the amount of such gain the Fund would have had if the Fund owned a direct interest in the pass-through entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income. If the Fund acquires any equity interest (under proposed Treasury Regulations, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations that receive at least 75% of its annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of its assets in investments producing such passive income ("passive foreign investment companies," or "PFICs"), the Fund could be subject to federal income tax and IRS interest charges on "excess distributions" received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund cannot pass through to its shareholders any credit or deduction for such taxes and interest charges. Elections may be available that would ameliorate these adverse tax consequences, but such elections could require the Fund to recognize taxable income or gain without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or manage its holdings in PFICs to limit its tax liability or maximize its returns from these investments. Because it is not always possible to identify a foreign corporation as a PFIC in advance of acquiring shares in the corporation, however, the Fund may incur the tax and interest charges described above in some instances. Rules governing the federal income tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while the Fund intends to account for such transactions in a manner it deems to be appropriate, the IRS might not accept such treatment. If it did not, the status of the Fund as a regulated investment company might be jeopardized. The Fund intend to monitor developments in this area. Certain requirements that must be met under the Code in order for the Fund to qualify as a regulated investment company may limit the extent to which the Fund will be able to engage in swap agreements. In addition to the investments described above, prospective shareholders should be aware that other investments made by the Fund may involve sophisticated tax rules that may result in income or gain recognition by the Fund without corresponding current cash receipts. Although the Fund seeks to avoid significant noncash income, such noncash income could be recognized by the Fund, in which case the Fund may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. In this regard, the Fund could be required at times to liquidate investments prematurely in order to satisfy its minimum distribution requirements. Taxation of Distributions For federal income tax purposes, the Fund's earnings and profits described above, are determined at the end of the Fund's taxable year and are allocated pro rata over the entire year. Accordingly, if during a taxable year the Fund's declared distributions exceed the Fund's earnings and profits (as determined at the end of the year), only that portion of the Fund's distributions during the year which equals the year's earnings and profits will be deemed to have constituted a taxable distribution. Distributions in excess of earnings and profits will first be treated as a return of capital up to the amount of a shareholder's tax basis in his or her Fund shares and then capital gain. Distributions that are designated by the Fund as capital gain distributions will be taxed to shareholders as long-term capital gain (to the extent such distributions do not exceed the Fund's actual net long-term capital gain for the taxable year), regardless of how long a shareholder has held Fund shares. Such distributions will be designated 5O as capital gain distributions in a written notice mailed by the Fund to its shareholders not later than 60 days after the close of the Fund's taxable year. Some states grant tax-free status to distributions to individual shareholders attributable to the Fund's interest earned on direct obligations of the U.S. Government, subject in some states to minimum investment or reporting requirements that must be met by the fund. Investments in Government National Mortgage Association or Federal National Mortgage Association securities, bankers' acceptances, commercial paper and repurchase agreements collateralized by U.S. Government securities do not generally qualify for tax -free treatment. This exemption may not apply to corporate shareholders. Disposition of Fund Shares If a shareholder sells, pursuant to a cash or in-kind redemption or otherwise, or exchanges his or her Fund shares, he or she generally will realize a taxable capital gain or loss on the difference between the amount received for the shares (or deemed received in the case of an exchange) and his or her tax basis in the shares, and long-term capital gain or loss if he or she has held such Fund shares for greater than one year at the time of the sale or exchange. If a shareholder exchanges or otherwise disposes of Fund shares within 90 days of having acquired such shares and if, as a result of having acquired those shares, he or she subsequently pays a reduced sales charge on a new purchase of shares of the Fund or a different regulated investment company, the sales charge previously incurred in acquiring the Fund's shares shall not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on the disposition, but will be treated as having been incurred in the acquisition of such other shares. Also, if a shareholder realizes a loss on a disposition of Fund shares, the loss will be disallowed to the extent that he or she purchases substantially identical shares within the 61-day period beginning 30 days before and ending 30 days after the disposition. Any disallowed loss generally will be included in the tax basis of the purchased shares. If a shareholder receives a capital gain distribution with respect to any Fund share and such Fund share is held for six months or less, then (unless otherwise disallowed) any loss on the sale or exchange of that Fund share will be treated as a long-term capital loss to the extent of the capital gain distribution. In addition, if a shareholder holds Fund shares for six months or less, any loss on the sale or exchange of those shares will be disallowed to the extent of the amount of exempt-interest distributions (defined below) received with respect to the shares. The Treasury Department is authorized to issue regulations reducing the six months holding requirement to a period of not less than the greater of 31 days or the period between regular distributions where the Fund regularly distributes at least 90% of its net tax-exempt interest, if any. No such regulations have been issued as of the date of this SAI. These loss disallowance rules do not apply to losses realized under a periodic redemption plan. As long as a Money Market Fund retains a net asset value of $1.00 per share, a shareholder of the Fund generally will not recognize any gain or loss on the sale or exchange of Fund shares. Foreign Taxes Amounts realized by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of non-U.S. corporations, the Fund will be eligible to file an election with the IRS pursuant to which the Fund may pass-through to its shareholders on a pro rata basis foreign income and similar taxes paid by the Fund, which may be claimed, subject to certain limitations, either as a tax credit or deduction by the shareholders. Only an International/Global Stock Fund could potentially qualify for and make the election. However, even if the Fund qualifies for the election, foreign income and similar taxes will only pass-through to the Fund shareholder where (i) the shareholder holds the Fund shares for at least 16 days during the 30 day period beginning 15 days prior to the date upon which the shareholder becomes entitled to receive Fund distributions corresponding with the pass-through of such foreign taxes paid by the Fund, and (ii) with respect to dividends received by the Fund on foreign shares giving rise to such foreign taxes, the Fund holds the shares for at least 16 days during the 30 day period beginning 15 days prior to the date upon which the Fund becomes entitled to the dividend. These holding periods increase for certain dividends on preferred stock. An individual with $300 or less of creditable foreign taxes 51 attributable to passive income generally is exempt from foreign source income and certain other limitations imposed by the Code on claiming a credit for such taxes. The $300 amount is increased to $600 for joint filers. Federal Income Tax Rates As of the printing of this SAI, the maximum individual federal income tax rate applicable to ordinary income is 38.6% (marginal tax rates may be higher for some individuals to reduce or eliminate the benefit of exemptions and deductions); the maximum individual marginal federal income tax rate applicable to net capital gain generally is 20%; and the maximum corporate federal income tax rate applicable to ordinary income and net capital gain is 35% (marginal tax rates may be higher for some corporations to reduce or eliminate the benefit of lower marginal income tax rates). A special, lower maximum rate of 18% on net capital gain is available to individuals to the extent the gain is derived from investments held for more than five years. (An even lower rate applies to individuals in some lower federal income tax brackets.) However, the 18% rate only applies to assets acquired after December 31, 2000, unless an election is made to treat certain assets held on January 1, 2001, as having been sold and then reacquired on the same date. If the election is made, the asset will be deemed to be sold at its fair market value and any gain, but not loss, will be recognized. The 18% rate will apply to capital gain distributions by the Fund to the extent that the gain is derived from the disposition of a portfolio investment acquired by the Fund after December 31, 2000 and was held for more than five years at the time of disposition. Under the Economic Growth and Tax Relief Recovery Act, individual federal income tax rates are set to decrease over the next several years. Naturally, the amount of tax payable by any taxpayer will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. Corporate Shareholders Subject to limitation and other rules, a corporate shareholder of the Fund may be eligible for the dividends-received deduction on Fund distributions attributable to dividends received by the Fund from domestic corporations, which, if received directly by the corporate shareholder, would qualify for such deduction. A distribution by the Fund attributable to dividends of a domestic corporation will only be eligible for the received deduction if (i) the corporate shareholder generally holds the Fund shares upon which the distribution is made for at least 46 days during the 90 day period beginning 45 days prior to the date upon which the shareholder becomes entitled to the distribution; and (ii) the Fund generally holds the shares of the domestic corporation producing the dividend income in an unleveraged position for at least 46 days (91 days in the case of certain dividends on preferred stock) during the 90 day (180 day) period beginning 45 days (90 days) prior to the date upon which the Fund becomes entitled to such dividend income. Foreign Shareholders Under the Code, distributions attributable to ordinary income, net short-term capital gain and certain other items realized by the Fund and paid to a nonresident alien individual, foreign trust (i.e., a trust other than a trust which a U.S. court is able to exercise primary supervision over administration of that trust and one or more U.S. persons have authority to control substantial decisions of that trust), foreign estate (i.e., the income of which is not subject to U.S. tax regardless of source) or foreign corporation (each, a "foreign shareholder") generally will be subject to federal income tax withholding (at a rate of 30% or, if an income tax treaty applies, at the lower treaty rate, if any). This tax generally is not refundable. Withholding will not apply if a distribution paid by the Fund to a foreign shareholder is "effectively connected" with a U.S. trade or business (or, if an income tax treaty applies, is attributable to a U.S. permanent establishment) of the foreign shareholder, in which case the reporting and withholding requirements applicable to U.S. persons generally will apply. Special rules apply to foreign partnerships. In general, foreign shareholders are not subject to federal income tax, including withholding tax, on gain realized on the disposition of Fund shares and capital gain distributions. Backup Withholding The Trust may be required to withhold, subject to certain exemptions, at a rate of 30% ("backup withholding") on all distributions and redemption proceeds (including proceeds from exchanges and redemptions in-kind) paid or credited to the Fund shareholder, unless the shareholder generally certifies that the "taxpayer identification number" ("TIN"), generally the shareholder's social security or employer identification number, provided is correct and that the shareholder is not subject to backup withholding, or the IRS notifies the Trust that 52 the shareholder's TIN is incorrect or that the shareholder is subject to backup withholding. This tax is not an additional federal income tax imposed on the shareholder, and the shareholder may claim the tax as a tax payment on his or her federal income tax return. An investor must provide a valid TIN upon opening or reopening an account. If a shareholder fails to furnish a valid TIN upon request, the shareholder can also be subject to IRS penalties. Under the Economic Growth and Tax Relief Recovery Act, the rate of backup withholding is set to decrease in future years. Tax-Deferred Plans The shares of the Fund are available for a variety of tax-deferred retirement and other tax-advantaged plans and accounts, including IRAs, Simplified Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Coverdell Education Savings Accounts. Prospective investors should contact their tax advisors and financial planners regarding the tax consequences to them of holding Fund shares through a tax-advantaged plan or account. UNDERWRITER COMPENSATION AND PAYMENTS Stephens serves as the principal underwriter and Distributor of the shares of the Fund. Its address is: 111 Center Street, Suite 300, Little Rock, Arkansas 72201 Pursuant to a Distribution Agreement, the Distributor, as agent, sells shares of the Fund on a continuous basis and transmits purchase and redemption orders that its receives to the Trust or the Transfer Agent. Additionally, the Distributor has agreed to use appropriate efforts to solicit orders for the sale of shares and to undertake advertising and promotion as it believes appropriate in connection with such solicitation. Pursuant to the Distribution Agreement, the Distributor, at its own expense, finances those activities which are primarily intended to result in the sale of shares of the Fund, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing of prospectus to other than existing shareholders, and the printing and mailing of sales literature. The Distributor, however, may be reimbursed for all or a portion of such expenses to the extent permitted by a Distribution Plan adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act. The Distribution Agreement became effective with respect to a Fund after approved by its Board, and continues from year to year, provided that such continuation of the Distribution Agreement is specifically approved at least annually by the Board, including its Independent Trustees. The Distribution Agreement terminates automatically in the event of its assignment, and is terminable with respect to a Fund at any time without penalty by the Trust (by vote of the Board or by vote of a majority of the outstanding voting securities of the Fund) or by BA Advisors or the Distributor on 60 days' written notice. Because the Fund is a new series it has not yet incurred any distribution related costs or paid any distribution-related expenses. FUND PERFORMANCE Advertising Fund Performance Performance information for the Fund may be obtained by calling (800) 321-7854 or (800) 765-2668 or by visiting www.bankofamerica.com/nationsfunds/enter.cfm. From time-to-time, the performance of a Fund's shares may be quoted in advertisements, shareholder reports, and other communications to shareholders. Quotations of yield and total return reflect only the performance of a hypothetical investment in a Fund during the particular time period shown. Yield and total return vary based on changes in the market conditions and the level of a Fund's expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. Standardized performance for the Fund, i.e., that required in both form and content by Form N-1A, is either shown below or incorporated by reference from the Fund's Annual Reports, and may be advertised by the Fund. The main purpose of standardized performance is to allow an investor to review the performance of a Fund's shares and compare such performance with that of investment alternatives, including other mutual funds. 53 Non-standardized performance also may be advertised by the Fund. One purpose of providing non-standardized performance to an investor is to give that investor a different performance perspective that may not be captured by standardized performance. The non-standardized performance of a Fund's shares, however, may not be directly comparable to the performance of investment alternatives because of differences in specific variables (such as the length of time over which performance is shown and the exclusion of certain charges or expenses) and methods used to value portfolio securities, compute expenses and calculate performance. Non-standardized performance may include, but is not limited to, performance for non-standardized periods, including year-to-date and other periods less than a year, performance not reflecting the deduction of certain charges, fees and/or expenses, and performance reflecting the deduction of applicable state or federal taxes, or so-called "after-tax performance" After-tax returns are generally calculated using the same methodology as that used in calculating total return, except that such after-tax returns reflect the deduction of taxes according to applicable federal income and capital gain tax rates attributable to dividends, distributions and an investor's redemptions. Of course, after-tax returns for individual investors will vary as the tax rates applicable to such investors vary. In addition, the Fund may also advertise its tax efficiency ratios and compare those ratios with other mutual funds. A tax efficiency ratio is intended to let an investor know how tax efficient a Fund has been over a period of time, and is typically related to its portfolio turnover rate. That is, an investor could expect that the higher a Fund's portfolio turnover rate, the greater the percentage of its gains that would have been realized and consequently, the less tax efficient it was over a given period of time. In general, comparisons to other mutual funds or investment alternatives may be useful to investors who wish to compare past performance of the Fund with that of competitors. Of course, past performance is not a guarantee of future results. Each Fund may quote information obtained from the Investment Company Institute, national financial publications, trade journals, industry sources and other periodicals in its advertising and sales literature. In addition, the Fund also may compare the performance and yield of shares to those of other mutual funds with similar investment objectives and to other relevant indices or to rankings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, the performance and yield of shares in a Fund may be compared to data prepared by Lipper Analytical Services, Inc. Performance and yield data as reported in national financial publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or in publications of a local or regional nature, also may be used in comparing the performance of shares in a Fund. The Fund also may use the following information in advertisements and other types of literature: (i) the Consumer Price Index may be used, for example, to assess the real rate of return from an investment in a Fund; (ii) other government statistics, including, but not limited to, The Survey of Current Business, may be used, among other things, to illustrate investment attributes of a Fund or the general economic, business, investment, or financial environment in which a Fund operates; (iii) the effect of tax-deferred compounding on the investment returns of a Fund, or on returns in general, may be illustrated by graphs, charts, etc., where such graphs or charts would compare, at various points in time, the return from an investment in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of capital gains and dividends and assuming one or more tax rates) with the return, among other things, on a taxable basis; and (iv) the sectors or industries in which a Fund invests may be compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's historical performance or current or potential value with respect to the particular industry or sector. In addition, the performance of a Fund's shares may be compared to the S&P 500, the Dow Jones Industrial Average, a recognized unmanaged index of common stocks of 30 industrial companies listed on the NYSE, the Europe, Far East and Australia Index, a recognized unmanaged index of international stocks, or any similar recognized index. The performance of a Fund's shares also may be compared to a customized composite index. In addition, the Fund also may use, in advertisements and other types of literature, information and statements: (1) showing that although bank savings accounts may offer a guaranteed return of principal and a fixed rate of interest, they offer no opportunity for capital growth; and (2) describing Bank of America, and its affiliates and predecessors, as one of the first investment managers to use asset allocation and index strategies in managing and advising accounts. The Fund also may include in advertising and other types of literature information and other data from reports and studies prepared by the Tax Foundation, including information regarding federal and state tax levels and the related "Tax Freedom Day." 54 The Fund also may discuss in advertising and other types of literature that a Fund has been assigned a rating by an NRSRO, such as S&P. Such rating would assess the creditworthiness of the investments held by the Fund. The assigned rating would not be a recommendation to buy, sell or hold the Fund's shares since the rating would not comment on the market price of the Fund's shares or the suitability of the Fund for a particular investor. In addition, the assigned rating would be subject to change, suspension or withdrawal as a result of changes in, or unavailability of, information relating to the Fund or its investments. The Fund may compare a Fund's performance with other investments which are assigned ratings by NRSROs. Any such comparisons may be useful to investors who wish to compare the Fund's past performance with other rated investments. The Fund also may disclose in sales literature the distribution rate on the shares of a Fund. Distribution rate, which may be annualized, is the amount determined by dividing the dollar amount per share of the most recent dividend by the most recent NAV or maximum offering price per share as of a date specified in the sales literature. Distribution rate will be accompanied by the standard 30-day yield as required by the SEC. In addition, certain potential benefits of investing in global securities markets may be discussed in promotional materials. Such benefits include, but are not limited to: a) the expanded opportunities for investment in securities markets outside the U.S.; b) the growth of securities markets outside the U.S. vis-a-vis U.S. markets; c) the relative return associated with foreign securities markets vis-a-vis U.S. markets; and d) a reduced risk of portfolio volatility resulting from a diversified securities portfolio consisting of both U.S. and foreign securities. Ibbotson Associates of Chicago, Illinois, ("Ibbotson") and other companies provide historical returns of the capital markets in the United States. The Fund may compare the performance of its shares to the long-term performance of the U.S. capital markets in order to demonstrate general long-term risk versus reward investment scenarios. Performance comparisons could also include the value of a hypothetical investment in common stocks, long-term bonds or treasuries. Yield Calculations Yield is calculated separately for the Fund's shares by dividing the net investment income per share for shares (as described below) earned during a 30-day period by the maximum offering price per share on the last day of the period and annualizing the result on a semi-annual basis by adding one to the quotient, raising the sum to the power of six, subtracting one from the result and then doubling the difference. Net investment income per share earned during the period is based on the average daily number of shares outstanding during the period entitled to receive dividends and includes dividends and interest earned during the period minus expenses accrued for the period, net of reimbursements. This calculation can be expressed as follows: Yield = 2 [(a-b+ 1)/6/ - 1] --- cd Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = maximum offering price per share on the last day of the period. For the purpose of determining net investment income earned during the period (variable- "a" in the formula), dividend income on equity securities held by a Fund is recognized by accruing 1/360 of the stated dividend rate of the security each day that the security is in the portfolio. Each Fund calculates interest earned on any debt obligations held in its portfolio by computing the yield to maturity of each obligation held by it based on the market value of the obligation (including actual accrued interest) at the close of business on the last business day of each month, or, with respect to obligations purchased during the month, the purchase price (plus actual accrued interest) and dividing the result by 360 and multiplying the quotient by the market value of the obligation (including actual accrued interest) in order to determine the interest income on the obligation for each day of the subsequent month that the obligation is in the portfolio. For purposes of this calculation, it is assumed that each month contains 30 days. The maturity of an obligation with a call provision is the next call date on which the obligation reasonably may be expected to be called or, if none, the maturity date. With respect to debt obligations purchased at a discount or 55 premium, the formula generally calls for amortization of the discount or premium. The amortization schedule will be adjusted monthly to reflect changes in the market values of such debt obligations. Expenses accrued for the period (variable "b" in the formula) include recurring fees charged by Nations Fund to shareholder accounts in proportion to the length of the base period. Undeclared earned income will be subtracted from the maximum offering price per share (variable "d" in the formula). Undeclared earned income is the net investment income which, at the end of the base period, has not been declared as a dividend, but is reasonably expected to be and is declared as a dividend shortly thereafter. A Fund's maximum offering price per share for purposes of the formula includes the maximum sales charge, if any, imposed by the Fund, as reflected in the Fund's prospectus. Because the Fund is a new series it does not yet have any performance history. Total Return Calculations Total return measures both the net investment income generated by, and the effect of any realized or unrealized appreciation or depreciation of the underlying investments in a Fund. The Fund's average annual and cumulative total return figures are computed in accordance with the standardized methods prescribed by the SEC. Average annual total return figures are computed by determining the average annual compounded rates of return over the periods indicated in the advertisement, sales literature or shareholders' report that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1 + T)/n/ = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period. This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment, and (b) all recurring fees, such as advisory and administrative fees, charged as expenses to all shareholder accounts. Because the Fund is a new series it does not yet have any performance history. Cumulative Return Cumulative total return is based on the overall percentage change in value of a hypothetical investment in the Fund, assuming all Fund dividends and capital gain distributions are reinvested, without reflecting the effect of any sales charge that would be paid by an investor, and is not annualized. Cumulative total return is computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: CTR = (ERV-P) 100 ----- P Where: CTR = Cumulative total return ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period P = initial payment of $1,000. 56 This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment, and (b) all recurring fees, such as advisory and administrative fees, charged as expenses to all shareholder accounts. Because the Fund is a new series it does not yet have any performance history. After-Tax Return Calculations As and to the extent required by the SEC, the Fund's average annual total returns (after taxes on distributions and redemption) ("T") are computed by using the redeemable value at the end of a specified period, after deducting taxes on Fund distributions and redemption of Fund shares ("ATVDR"), of a hypothetical initial investment ("P") over a period of years ("n") according to the following formula: P(1+T)n=ATVDR. All of the above average annual total return information, along with the before-tax average annual total returns for an appropriate broad-based index, is presented in the Prospectus. 57 APPENDIX A--DESCRIPTION OF SECURITY RATINGS The following summarizes the highest six ratings used by S&P for corporate and municipal bonds. The first four ratings denote investment-grade securities. AAA - This is the highest rating assigned by S&P to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA - Debt rated AA is considered to have a very strong capacity to pay interest and repay principal and differs from AAA issues only in a small degree. A - Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for those in higher-rated categories. BB, B - Bonds rated BB and B are regarded, on balance as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. To provide more detailed indications of credit quality, the AA, A and BBB, BB and B ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. The following summarizes the highest six ratings used by Moody's for corporate and municipal bonds. The first four denote investment-grade securities. Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds that are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not as well safeguarded during both good times and bad times over the future. Uncertainty of position characterizes bonds in this class. A-1 B - Bond that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds rated Aa through B. The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower end of its generic rating category. With regard to municipal bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aal, A1 or Baal, respectively. The following summarizes the highest four ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities are investment-grade. AAA - Bonds that are rated AAA are of the highest credit quality. The risk factors are considered to be negligible, being only slightly more than for risk-free U.S. Treasury debt. AA - Bonds that are rated AA are of high credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A - Bonds that are rated A have protection factors which are average but adequate. However risk factors are more variable and greater in periods of economic stress. BBB - Bonds that are rated BBB have below average protection factors but still are considered sufficient for prudent investment. Considerable variability in risk exists during economic cycles. To provide more detailed indications of credit quality, the AA, A and BBB ratings may modified by the addition of a plus or minus sign to show relative standing within these major categories. The following summarizes the highest four ratings used by Fitch Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the securities are investment-grade: AAA - Bonds considered to be investment-grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA - Bonds considered to be investment-grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A - Bonds considered to be investment-grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB - Bonds considered to be investment-grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment-grade is higher than for bonds with higher ratings. To provide more detailed indications of credit quality, the AA, A and BBB ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. The following summarizes the two highest ratings used by Moody's for short-term municipal notes and variable-rate demand obligations: MIG-1/VMIG-1 -- Obligations bearing these designations are of the best quality, enjoying strong protection from established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality, with ample margins of protection although not so large as in the preceding group. A-2 The following summarizes the two highest ratings used by S&P for short-term municipal notes: SP-1 - Indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a "plus" (+) designation. SP-2 - Indicates satisfactory capacity to pay principal and interest. The three highest rating categories of D&P for short-term debt, each of which denotes that the securities are investment-grade, are D-1, D-2, and D-3. D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating category. D-1+ indicates highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is judged to be "outstanding, and safety is just below risk-free U.S. Treasury short-term obligations." D-1 indicates very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are considered to be minor. D-1 indicates high certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. D-2 indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. D-3 indicates satisfactory liquidity and other protection factors which qualify the issue as investment-grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. The following summarizes the two highest rating categories used by Fitch for short-term obligations each of which denotes that the securities are investment-grade: F-1+ securities possess exceptionally strong credit quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 securities possess very strong credit quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2 securities possess good credit quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned the F-1+ and F-1 ratings. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of senior short-term promissory obligations. Issuers rated Prime-2 (or related supporting institutions) are considered to have a strong capacity for repayment of senior short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. For commercial paper, D&P uses the short-term debt ratings described above. For commercial paper, Fitch uses the short-term debt ratings described above. Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and quantitative analysis of all segments of the organization including, where applicable, holding company and operating subsidiaries. BankWatch ratings do not constitute a recommendation to buy or sell securities of any of these companies. Further, BankWatch does not suggest specific investment criteria for individual clients. BankWatch long-term ratings apply to specific issues of long-term debt and preferred stock. The long-term ratings specifically assess the likelihood of untimely payment of principal or interest over the term to maturity of the rated instrument. The following are the four investment-grade ratings used by BankWatch for long-term debt: AAA - The highest category; indicates ability to repay principal and interest on a timely basis is extremely high. A-3 AA - The second highest category; indicates a very strong ability to repay principal and interest on a timely basis with limited incremental risk versus issues rated in the highest category. A - The third highest category; indicates the ability to repay principal and interest is strong. Issues rated "A" could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. BBB - The lowest investment-grade category; indicates an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Long-term debt ratings may include a plus (+) or minus (-) sign to indicate where within a category the issue is placed. The BankWatch short-term ratings apply to commercial paper, other senior short-term obligations and deposit obligations of the entities to which the rating has been assigned. The BankWatch short-term ratings specifically assess the likelihood of an untimely payment of principal or interest. TBW-1 The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis. TBW-2 The second highest category; while the degree of safety regarding timely repayment of principal and interest is strong, the relative degree of safety is not as high as for issues rated "TBW-1". TBW-3 The lowest investment-grade category; indicates that while more susceptible to adverse developments (both internal and external) than obligations with higher ratings, capacity to service principal and interest in a timely fashion is considered adequate. TBW-4 The lowest rating category; this rating is regarded as non-investment-grade and therefore speculative. The following summarizes the four highest long-term debt ratings used by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"): AAA - Obligations for which there is the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk significantly. AA - Obligations for which there is a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk albeit not very significantly. A - Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk. BBB - Obligations for which there is currently a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in other categories. A plus or minus sign may be appended to a rating below AAA to denote relative status within major rating categories. The following summarizes the two highest short-term debt ratings used by IBCA: A1+ When issues possess a particularly strong credit feature, a rating of A1+ is assigned. A1 - Obligations supported by the highest capacity for timely repayment. A2 - Obligations supported by a good capacity for timely repayment. A-4 APPENDIX B--GLOSSARY
Term Used in SAI Definition - ---------------- ---------- 1933 Act ................................... Securities Act of 1933, as amended 1934 Act ................................... Securities Exchange Act of 1934, as amended 1940 Act ................................... Investment Company Act of 1940, as amended Adviser .................................... BA Advisors and/or BACAP, as the context may require Advisory Agreements ........................ The respective Investment Advisory Agreement and Investment Sub-Advisory Agreement for the Fund AMEX ....................................... American Stock Exchange BA Advisors ................................ Banc of America Advisors, LLC BACAP ...................................... Banc of America Capital Management, LLC Bank of America ............................ Bank of America, N.A. BNY ........................................ The Bank of New York Board ...................................... The Trust's Board of Trustees CFTC ....................................... Commodities Futures Trading Commission Co-Administrator(s) ........................ BA Advisors and Stephens Code ....................................... Internal Revenue Code of 1986, as amended Code of Ethics ............................. The code of ethics adopted by the Board pursuant to Rule 17j-1 under the 1940 Act CMOs ....................................... Collateralized mortgage obligations Companies .................................. Two or more of NFT, NFI, NR or the Trust Company .................................... Any one of NFT, NFI, NR or the Trust Custodian .................................. The Bank of New York Distributor ................................ Stephens Inc. FHLMC ...................................... Federal Home Loan Mortgage Corporation FNMA ....................................... Federal National Mortgage Association Fund ....................................... Nations SmallCap Core Fund GNMA ....................................... Government National Mortgage Association Investment Advisory Agreement .............. The investment advisory agreement between the Trust, on behalf of its Fund, and BA Advisors Investment Sub-Advisory Agreement .......... The investment sub-advisory agreement between the Trust, on behalf of each of its respective Fund, and BACAP IRS ........................................ United States Internal Revenue Service Moody's .................................... Moody's Investors Service, Inc. NSAT ....................................... Nations Separate Account Trust Nations Funds or Nations Funds Family ...... The fund complex that is comprised of the Companies, along with NSAT and NMIT. NFI ........................................ Nations Fund, Inc., a registered investment company in the Nations Funds Family NFT ........................................ Nations Fund Trust, a registered investment company in the Nations Funds Family NMIT ....................................... Nations Master Investment Trust, a registered investment company in the Nations Funds Family NR ......................................... Nations Reserves (formerly known as The Capitol Mutual Funds), a registered investment company in the Nations Funds Family NYSE ....................................... New York Stock Exchange
B-1 NRSRO ...................................... Nationally recognized statistical ratings organization (such as Moody's or S&P) PFPC ....................................... PFPC Inc. REIT ....................................... Real estate investment trust S&P ........................................ Standard & Poor's Corporation SAI ........................................ This Statement of Additional Information SEC ........................................ United States Securities and Exchange Commission SMBS ....................................... Stripped mortgage-backed securities Stephens ................................... Stephens Inc. Sub-Administrator .......................... BNY Sub-Transfer Agent ......................... Bank of America (for the Fund's Primary Shares) Transfer Agent ............................. PFPC Transfer Agency Agreement .................. The transfer agency agreement between the Trust, on behalf of its respective funds, and PFPC The Trust .................................. Nations Funds Trust, the registered investment company in the Nations Funds Family to which this SAI relates
B-2 NATIONS FUNDS TRUST ONE BANK OF AMERICA PLAZA 33rd Floor Charlotte, NC 28255 1-800-626-2275 FORM N-1A PART C OTHER INFORMATION ITEM 23. Exhibits All references to the "Registration Statement" in the following list of Exhibits refer to the Registrant's Registration Statement on Form N-1A (File Nos. 333-89661; 811-09645) - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (a) Articles of Incorporation: (a)(1) Certificate of Trust dated October 22, 1999, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (a)(2) Amended and Restated Declaration of Trust last amended February 22, 2001, incorporated by reference to Post-Effective Amendment No. 9, filed April 9, 2001. - -------------------------------------------------------------------------------- (b) Bylaws: Not Applicable - -------------------------------------------------------------------------------- (c) Instruments Defining Rights of Securities Holders: Not Applicable - -------------------------------------------------------------------------------- (d) Investment Advisory Contracts: (d)(1) Investment Advisory Agreement between Banc of America Advisors, LLC (formerly Banc of America Advisors, Inc.) ("BA Advisors") and Nations Funds Trust ("Registrant") dated March 30, 2000, Schedule I dated August 28, 2002, filed herewith. - -------------------------------------------------------------------------------- C-1 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (d)(2) BA Advisors Assumption Agreement on behalf of the LifeGoal Portfolios dated June 8, 2001, filed herewith. (d)(3) Investment Advisory Agreement between BA Advisors and the Registrant on behalf of the Fixed Income Sector Portfolios dated August 28, 2002, filed herewith. (d)(4) BA Advisors Assumption Agreement on behalf of the Fixed Income Sector Portfolios dated August 28, 2002, filed herewith. (d)(5) Investment Sub-Advisory Agreement among BA Advisors, Banc of America Capital Management, LLC (formerly Banc of America Capital Management, Inc.) ("BACAP") and the Registrant dated March 30, 2000, Schedule I dated August 28, 2002, filed herewith. (d)(6) Investment Sub-Advisory Agreement among BA Advisors, Brandes Investment Partners, L.P. ("Brandes") and the Registrant dated April 9, 2001, incorporated by reference to Post-Effective Amendment No. 9, filed April 9, 2001. (d)(7) Investment Sub-Advisory Agreement among BA Advisors, Gartmore Global Partners ("Gartmore") and the registrant dated May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. - -------------------------------------------------------------------------------- (e) Underwriting Contract: (e)(1) Distribution Agreement between the Registrant and Stephens Inc. ("Stephens") dated February 14, 2000, Schedule I dated August 28, 2002, filed herewith. - -------------------------------------------------------------------------------- (f) Bonus or Profit Sharing Contracts: (f)(1) Deferred Compensation Plan dated December 9, 1999 last amended February 28, 2002, incorporated by reference to Post-Effective Amendment No. 20, filed May 1, 2002. - -------------------------------------------------------------------------------- (g) Custodian Agreements: (g)(1) Amended and Restated Custody Agreement between the Registrant and The Bank of New York ("BNY") dated July 2, 2001, Schedule I dated August 28, 2002, filed herewith. - -------------------------------------------------------------------------------- C-2 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (g)(2) Custody Agreement between the Registrant and Bank of America, N.A. on behalf of the LifeGoal Portfolios dated June 8, 2001, incorporated by reference to Post-Effective Amendment No. 11, filed July 31, 2001. - -------------------------------------------------------------------------------- (h) Other Material Contracts: (h)(1) Co-Administration Agreement among the Registrant, Stephens and BA Advisors dated February 14, 2000, Schedule I dated August 28, 2002, filed herewith. (h)(2) Sub-Administration Agreement among the Registrant, BNY and BA Advisors dated February 14, 2000, Schedule I dated August 28, 2002, filed herewith. (h)(3) Shareholder Servicing Plan relating to Investor B Shares, Exhibit I amended August 28, 2002, filed herewith. (h)(4) Shareholder Servicing Plan relating to Investor C Shares, Exhibit I amended August 28, 2002, filed herewith. (h)(5) Shareholder Servicing Plan relating to Adviser Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(6) Shareholder Servicing Plan relating to Daily Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(7) Shareholder Servicing Plan relating to Investor Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(8) Shareholder Servicing Plan relating to Liquidity Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(9) Shareholder Servicing Plan relating to Market Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(10) Shareholder Servicing Plan relating to Service Class Shares, Schedule I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. - -------------------------------------------------------------------------------- C-3 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (h)(11) Shareholder Administration Plan relating to Investor B and Investor C Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(12) Shareholder Administration Plan relating to Institutional Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(13) Shareholder Administration Plan relating to Trust Class Shares, Exhibit I amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (h)(14) Transfer Agency and Services Agreement between PFPC Inc. (formerly First Data Investor Services Group, Inc.) ("PFPC") and the Nations Funds family dated June 1, 1995, Schedule G dated August 28, 2002, filed herewith. (h)(15) Adoption Agreement and Amendment to Transfer Agency and Services Agreement dated February 14, 2000, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (h)(16) Amendment to Transfer Agency and Services Agreement dated January 1, 1999, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (h)(17) Sub-Transfer Agency Agreement between PFPC and Bank of America, N.A. ("Bank of America") dated September 11, 1995, Schedule A dated August 28, 2002, filed herewith. (h)(18) Amendment No. 1 to the Sub-Transfer Agency and Services Agreement dated January 3, 2000, incorporated by reference to Post-Effective Amendment No. 6, filed December 27, 2000. (h)(19) Amendment No. 2 to the Sub-Transfer Agency and Services Agreement dated December 1, 2000, incorporated by reference to Post-Effective Amendment No. 6, filed December 27, 2000. (h)(20) Amended and Restated Foreign Custody Manager Agreement between BNY and the Nations Funds family dated July 2, 2001, Appendix dated August 28, 2002, filed herewith. - -------------------------------------------------------------------------------- C-4 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (h)(21) Cross Indemnification Agreement among Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Master Investment Trust and the Registrant dated February 14, 2000, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. - -------------------------------------------------------------------------------- (i) Legal Opinion (i)(1) Opinion and Consent of Counsel, filed herewith. - -------------------------------------------------------------------------------- (j) Other Opinions (j)(1) Not Applicable - -------------------------------------------------------------------------------- (k) Omitted Financial Statements Not Applicable - -------------------------------------------------------------------------------- (l) Initial Capital Agreements: (l)(1) Investment Letter, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. - -------------------------------------------------------------------------------- (m) Rule 12b-1 Plans: (m)(1) Shareholder Administration Plan relating to Primary B Shares, incorporated by reference to Post-Effective Amendment No. 11, filed July 31, 2001. (m)(2) Shareholder Servicing and Distribution Plan relating to Investor A Shares, Exhibit A amended August 28, 2002, filed herewith. (m)(3) Distribution Plan relating to Investor B Shares, Exhibit A amended August 28, 2002, filed herewith. (m)(4) Distribution Plan relating to Investor C Shares, Exhibit A amended August 28, 2002, filed herewith. (m)(5) Distribution Plan relating to Daily Class Shares, Exhibit A amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (m)(6) Distribution Plan relating to Investor Class Shares, Exhibit A amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. C-5 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (m)(7) Distribution Plan relating to Liquidity Class Shares, Exhibit A amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (m)(8) Distribution Plan relating to Market Class Shares, Exhibit A amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (m)(9) Distribution Plan relating to Service Class Shares, Exhibit A amended May 10, 2002, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. - -------------------------------------------------------------------------------- (n) Financial Data Schedule: Not Applicable. - -------------------------------------------------------------------------------- (o) Rule 18f-3 Plan: (o)(1) Rule 18f-3 Multi-Class Plan, last amended August 28, 2002, filed herewith. - -------------------------------------------------------------------------------- (p) Codes of Ethics: (p)(1) Nations Funds Family Code of Ethics, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (p)(2) BA Advisors and BACAP Code of Ethics, incorporated by reference to Post-Effective Amendment No. 20, filed May 1, 2002. (p)(3) Brandes Code of Ethics, incorporated by reference to Post-Effective Amendment No. 9, filed April 9, 2001. (p)(4) Gartmore Code of Ethics, incorporated by reference to Post-Effective Amendment No. 26, filed July 31, 2002. (p)(5) Stephens Code of Ethics, incorporated by reference to Post-Effective Amendment No. 5, filed October 13, 2000. - -------------------------------------------------------------------------------- (q) Powers of Attorney for Edmund L. Benson, Charles B. Walker, A. Max Walker, Thomas S. Word, Jr., William H. Grigg, Thomas F. Keller, Carl E. Mundy, Jr., James B. Sommers, Cornelius J. Pings and William P. Carmichael, incorporated by reference to Post-Effective Amendment No. 2, filed May 5, 2000. - -------------------------------------------------------------------------------- C-6 ITEM 24. Persons Controlled by of Under Common Control with the Fund No person is controlled by or under common control with the Registrant. ITEM 25. Indemnification Article VII of the Declaration of Trust provides for the indemnification of the Registrant's trustees, officers, employees and other agents. Indemnification of the Registrant's administrators, distributor, custodian and transfer agents is provided for, respectively, in the Registrant's: 1. Co-Administration Agreement with Stephens and BA Advisors; 2. Sub-Administration Agreement with BNY and BA Advisors; 3. Distribution Agreement with Stephens; 4. Custody Agreement with BNY; 5. Custody Agreement with Bank of America, N.A.; 6. Transfer Agency and Services Agreement with PFPC; and 7. Sub-Transfer Agency and Services Agreement with PFPC and Bank of America. The Registrant has entered into a Cross Indemnification Agreement with Nations Fund Trust (the "Trust") Nations Fund, Inc. (the "Company"), Nations Reserves ("Reserves") and Nations Master Investment Trust ("Master Trust") dated February 14, 2000. The Trust, the Company, Reserves and/or Master Trust will indemnify and hold harmless the Registrant against any losses, claims, damages or liabilities, to which the Registrant may become subject, under the Securities Act of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act") or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any prospectuses, any preliminary prospectuses, the registration statements, any other prospectuses relating to the securities, or any amendments or supplements to the foregoing (hereinafter referred to collectively as the "Offering Documents"), or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Offering Documents in reliance upon and in conformity with written information furnished to the Registrant by the Trust, the Company, Reserves and/or Master Trust expressly for use therein; and will reimburse the Registrant for any legal or other expenses reasonably incurred by the Registrant in connection with investigating or defending any such action or claim; provided, however, that the Trust, the Company, Reserves and/or Master Trust shall not be liable in any such case to the extent that any such loss, claim, damage, or C-7 liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Offering Documents in reliance upon and in conformity with written information furnished to the Trust, the Company, Reserves and/or Master Trust by the Registrant expressly for use in the Offering Documents. Promptly after receipt by an indemnified party above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission to so notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. The Registrant has obtained from a major insurance carrier a trustees' and officers' liability policy covering certain types of errors and omissions. In no event will the Registrant indemnify any of its trustees, officers, employees, or agents against any liability to which such person would otherwise be subject by reason of his/her willful misfeasance, bad faith, gross negligence in the performance of his/her duties, or by reason of his/her reckless disregard of the duties involved in the conduct of his/her office or arising under his agreement with the Registrant. The Registrant will comply with Rule 484 under the 1933 Act and Release No. 11330 under the 1940 Act, in connection with any indemnification. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission ("SEC") such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any act, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issues. C-8 ITEM 26. Business and Other Connections of the Investment Adviser To the knowledge of the Registrant, none of the directors or officers of BA Advisors, the adviser to the Registrant's portfolios, or BACAP, Brandes or Gartmore, the investment sub-advisers, except those set forth below, are or have been, at any time during the past two calendar years, engaged in any other business, profession, vocation or employment of a substantial nature, except that certain directors and officers also hold various positions with, and engage in business for, the company that owns all the outstanding stock (other than directors' qualifying shares) of BA Advisors, BACAP, Brandes or Gartmore, respectively, or other subsidiaries of Bank of America Corporation. (a) BA Advisors performs investment advisory services for the Registrant and certain other customers. BA Advisors is a wholly-owned subsidiary of Bank of America, which in turn is a wholly-owned banking subsidiary of Bank of America Corporation. Information with respect to each director and officer of the investment adviser is incorporated by reference to Form ADV filed by BA Advisors with the SEC pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers Act") (file no. 801-49874). (b) BACAP performs investment sub-advisory services for the Registrant and certain other customers. BACAP is a wholly-owned subsidiary of Bank of America Corporation. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by BACAP (formerly TradeStreet Investment Associates, Inc.) with the SEC pursuant to the Advisers Act (file no. 801-50372). (c) Brandes performs investment sub-advisory services for the Registrant and certain other customers. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by Brandes with the SEC pursuant to the Advisers Act (file no. 801-24986). (d) Gartmore performs investment sub-advisory services for the Registrant and certain other customers. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by Gartmore with the SEC pursuant to the Advisers Act (file no. 801-48811). ITEM 27. Principal Underwriters (a) Stephens, distributor for the Registrant, does not presently act as investment adviser for any other registered investment companies, but does act as distributor for Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Separate Account Trust, Wells Fargo Funds Trust, Wells Fargo Variable Trust, Barclays Global Investors Funds, Inc., and is the exclusive placement agent for Wells Fargo Core Trust, Nations Master Investment Trust and Master Investment Portfolio, all of which are registered open-end management investment companies, and has acted as principal C-9 underwriter for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund, Inc., and Hatteras Income Securities, Inc., closed-end management investment companies. (b) Information with respect to each director and officer of the principal underwriter is incorporated by reference to Form ADV filed by Stephens with the SEC pursuant to the 1940 Act (file No. 501-15510). (c) Not applicable. ITEM 28. Location of Accounts and Records (1) BA Advisors, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as investment adviser and co-administrator). (2) BACAP, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as investment sub-adviser). (3) Brandes, 11988 El Camino Real, San Diego, CA 92130 (records relating to its function as investment sub-adviser). (4) Gartmore, Gartmore House, 8 Fenchurch Place, London EC3M 4PH, England (records relating to its function as investment sub-adviser). (5) Stephens, 111 Center Street, Little Rock, AR 72201 (records relating to its function as distributor and co-administrator). (6) PFPC, 400 Bellevue Parkway, Wilmington, DE 19809 (records relating to its function as transfer agent). (7) BNY, 100 Church Street, New York, NY 10286 (records relating to its function as custodian and sub-administrator). (8) Bank of America, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as sub-transfer agent). ITEM 29. Management Services Not Applicable ITEM 30. Undertakings Not Applicable C-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Little Rock, State of Arkansas on the 10th day of September, 2002. NATIONS FUNDS TRUST By: * ---------------------------- A. Max Walker President and Chairman of the Board of Trustees By: /s/ Richard H. Blank, Jr. ---------------------------- Richard H. Blank, Jr. *Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated: SIGNATURES TITLE DATE ---------- ----- ---- * President and Chairman September 10, 2002 - ------------------------- of the Board of Trustees (A. Max Walker) (Principal Executive Officer) /s/ Richard H. Blank, Jr. Treasurer and Secretary September 10, 2002 - ------------------------- (Principal Financial and (Richard H. Blank, Jr.) Accounting Officer) * Trustee September 10, 2002 - ------------------------- (Edmund L. Benson, III) * Trustee September 10, 2002 - ------------------------- (William P. Carmichael) * Trustee September 10, 2002 - ------------------------- (William H. Grigg) * Trustee September 10, 2002 - ------------------------- (Thomas F. Keller) * Trustee September 10, 2002 - ------------------------- (Carl E. Mundy, Jr.) * Trustee September 10, 2002 - ------------------------- (Cornelius J. Pings) * Trustee September 10, 2002 - ------------------------- (Charles B. Walker) * Trustee September 10, 2002 - ------------------------- (Thomas S. Word) * Trustee September 10, 2002 - ------------------------- (James B. Sommers) /s/ Richard H. Blank, Jr. - ------------------------- Richard H. Blank, Jr. *Attorney-in-Fact EXHIBIT INDEX Nations Funds Trust File No. 333-89661 EX.-99.23(d)(1) Investment Advisory Agreement between BA Advisors and Nations Funds Trust EX.-99.23(d)(2) BA Advisors Assumption Agreement on behalf of LifeGoal Portfolios EX.-99.23(d)(3) Investment Sub-Advisory Agreement among BA Advisors, BACAP and Nations Funds Trust EX.-99.23(d)(4) BA Advisors Assumption Agreement on behalf of the Fixed Income Sector Portfolios EX.-99.23(d)(5) Investment Sub-Advisory Agreement among BA Advisors, BACAP and Nations Funds Trust EX.-99.23(e)(1) Distribution Agreement with Stephens Inc. EX.-99.23(g)(1) Amended and Restated Custody Agreement with The Bank of New York EX.-99.23(h)(1) Co-Administration Agreement among Stephens, BA Advisors and Nations Funds Trust EX.-99.23(h)(2) Sub-Administration Agreement among BNY, BA Advisors and Nations Funds Trust EX.-99.23(h)(3) Shareholder Servicing Plan relating to Investor B Shares EX.-99.23(h)(4) Shareholder Servicing Plan relating to Investor C Shares EX.-99.23(h)(14) Transfer Agency and Services Agreement between PFPC Inc. and the Nations Funds family EX.-99.23(h)(17) Sub-Transfer Agency Agreement between PFPC and Bank of America, N.A. EX.-99.23(h)(20) Amended and Restated Foreign Custody Manager Agreement between BNY and the Nations Funds family EX.-99.23(i)(1) Opinion and Consent of Counsel - Morrison & Foerster LLP EX.-99.23(m)(2) Shareholder Servicing and Distribution Plan relating to Investor A Shares EX.-99.23(m)(3) Distribution Plan relating to Investor B Shares EX.-99.23(m)(4) Distribution Plan relating to Investor C Shares EX.-99.23(o)(1) Rule 18f-3 Multi-Class Plan EX-99.1(D)(1) 3 dex991d1.txt INVESTMENT ADVISORY AGREEMENT Exhibit 99.23(d)(1) INVESTMENT ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of March 30, 2000, by and between NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), and BANC OF AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each, a "Fund" and collectively, the "Funds"). 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 Trust desires that the Adviser manage the investment operations of the Funds and the Adviser desires to manage said operations; and WHEREAS, the Board of Trustees of the Trust (the "Board"), including a majority of the Trustees who are not "interested persons" (as defined herein) of any party to this Agreement, have approved this arrangement; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment of Adviser. The Trust hereby appoints the Adviser and the Adviser hereby agrees to manage the investment operations of each Fund subject to the terms of this Agreement and subject to the supervision of the Board. The Trust and the Adviser contemplate that certain duties of the Adviser under this Agreement may be delegated to one or more investment sub-adviser(s) (the "Sub-Adviser(s)") pursuant to separate investment sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)"). The Adviser may, in its discretion, provide services under this Agreement through its own employees or through one or more affiliated companies that are qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation. 2. Services of Adviser. The Adviser shall perform, or arrange for the performance of, the management services necessary for the investment operations of each Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly; (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund's procedures and as may be directed by the Trust; -1- (c) Assisting in the preparation of all shareholder communications, including shareholder reports, and participating in shareholder relations; (d) Making recommendations as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Board with respect to Fund investment policies and procedures, and carrying out such investment policies and procedures as are adopted by the Board; (f) Supplying reports, evaluations, analyses, statistical data and information to the Board or to the Funds' officers and other service providers as 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 required books and records with respect to the investment decisions and securities transactions for each Fund; (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 this Agreement or as the Board may reasonably request from time to time. 3. Responsibilities of Adviser. In carrying out its obligations under this Agreement, the 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 Fund 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 Fund shares; (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds 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 Adviser will use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors that it deems relevant, including the -2- 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 Adviser may also consider whether such broker or dealer furnishes research and other information or services to the Adviser; (e) Adhere to the investment objective, strategies and policies and procedures of the Trust adopted on behalf of each Fund; and (f) Maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. In making investment recommendations for a Fund, the Adviser's investment advisory personnel will not inquire or take into consideration whether the issuers (or related supporting institutions) of securities proposed for purchase or sale for the Fund's account are customers of the commercial departments of its affiliates. In dealing with commercial customers, such commercial departments will not inquire or take into consideration whether securities of those customers are held by the Fund. 4. Confidentiality of Information. Each party agrees that it will treat confidentially all information provided by the other party regarding such other party's business and operations, including without limitation the investment activities or holdings of a Fund. 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. Delegation of Duties. Subject to the approval of the Board and, if required, the shareholders of the Funds, the Adviser may delegate to one or more Sub-Adviser(s) any or all of its duties hereunder, provided that the Adviser shall continue to supervise and monitor the performance of the duties delegated to the Sub-Adviser(s) and any such delegation shall not relieve the Adviser of its duties and obligations under this Agreement. The Adviser shall be solely responsible for compensating the Sub-Adviser(s) for performing any of the duties delegated to them. The Adviser may request that the Trust pay directly to the Sub-Adviser(s) the portion of the Adviser's compensation that the Adviser is obligated to pay to the Sub-Adviser(s). If the Trust agrees to such request, it will pay such portion to the Sub-Adviser(s) on behalf of the Adviser, thereby reducing the compensation paid to the Adviser by the amount paid directly to the Sub-Adviser(s). However, such an arrangement will not relieve the Adviser of its responsibility for compensating the Sub-Adviser(s). In the event that any Sub-Adviser appointed hereunder is terminated, the Adviser may provide investment advisory services pursuant to this Agreement through its own employees or through one or more affiliated companies that are -3- qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation or through other Sub-Adviser(s) as approved by the Trust in accordance with applicable law. 6. Services Not Exclusive. The services furnished by the Adviser hereunder are deemed not to be exclusive, and the 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 Adviser to be suitable for two or more accounts managed by the Adviser, the available securities or investments may be allocated in a manner believed by the 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 Fund or the size of the position obtainable for or disposed of by a Fund. Nothing in this Agreement shall limit or restrict the right of any of the Adviser's partners, officers or employees to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 7. Delivery of Documents. The Trust has furnished the Adviser with copies, properly certified or authenticated, of each of the following: (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 most recent prospectus(es) and statement(s) of additional information relating to each Fund (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 (c) any and all applicable policies and procedures approved by the Board. The Trust will promptly furnish the Adviser with copies of any and all amendments of or additions or supplements to the foregoing. 8. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records that it maintains for each Fund under this Agreement are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon request. The 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. 9. Expenses of the Funds. Except to the extent expressly assumed by the Adviser and except to any extent required by law to be paid or reimbursed by the Adviser, the Adviser -4- shall have no duty to pay any ordinary operating expenses incurred in the organization and operation of the Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other service providers' fees and expenses, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to Board and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders and interest payments and other fees or charges associated with any credit facilities established by or on behalf of the Funds. 10. Compensation. Except as otherwise provided herein, for the services provided to each Fund and the expenses assumed pursuant to this Agreement, the Trust will pay the Adviser and the Adviser will accept as full compensation therefor a fee determined in accordance with Schedule I attached hereto; provided, however, that the compensation paid to the Adviser shall be reduced by any amount paid by the Trust directly to the Sub-Advisor(s) pursuant to Section 5 of this Agreement. In addition, BAAI or its affiliated persons may receive compensation or reimbursement of recordkeeping, bookkeeping, accounting, administrative and transactional fees or charges incurred in connection with any credit facilities established by or on behalf of the Funds. The fees or charges attributable to each Fund shall be a separate charge to such Fund and shall be the several (and not joint or joint and several) obligation of each such Fund. The Trust and the Adviser may, from time to time, agree to reduce, limit or waive the amounts payable hereunder with respect to one or more Funds for such period or periods they deem advisable. 11. Liability of Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by 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, or a loss resulting from willful misfeasance, bad faith or negligence on the part of the Adviser or any of its officers, directors, employees or agents, in the performance of their duties under this Agreement, or from reckless disregard by it of obligations and 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 Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund 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 Fund at least annually: (a)(i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (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 -5- Trust), by votes cast in person at a meeting specifically called for such purpose. 13. Termination. This Agreement may be terminated without payment of any penalty at any time by: (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities, upon sixty (60) days' written notice to the Adviser; or (b) the Adviser with respect to a Fund, upon sixty (60) days' written notice to the Trust. 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. 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. 15. 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, and that of the Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President. 16. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds 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 Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 17. 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. 18. 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. -6- 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. -7- 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 FUNDS TRUST on behalf of the Funds 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 -8- SCHEDULE I The Trust shall pay the Adviser, as full compensation for services provided and expenses assumed hereunder, an advisory fee for each Fund, computed daily and payable monthly at the annual rates listed below as a percentage of the average daily net assets of the Fund:
Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations MidCap Index Fund 0.40% 03/30/00 Nations Kansas Municipal Income Fund 0.50% 07/14/00 Nations Financial Services Fund 0.75% 03/29/01 Nations Classic Value Fund 0.65% 04/09/01 Nations Global Value Fund 0.90% 04/09/01 Nations Asset Allocation Fund 0.65% 06/08/01 Nations Government Securities Fund 0.50% up to $100 million 06/08/01 0.45% up to $250 million 0.40% in excess of $250 million Nations LifeGoal Growth Portfolio 0.25% 06/08/01 Nations LifeGoal Balanced Growth Portfolio 0.25% 06/08/01 Nations LifeGoal Income and Growth Portfolio 0.25% 06/08/01 Nations MidCap Value Fund 0.75% 11/19/01 Nations LargeCap Value Fund 0.65% 11/19/01 Nations New York Tax-Exempt Reserves 0.15% 02/15/02 Nations Research Fund 0.65% 03/27/02 Nations Value Fund 0.65% 05/17/02 Nations Capital Growth Fund 0.65% 05/10/02 Nations MidCap Growth Fund 0.65% 05/10/02 Nations LargeCap Index Fund 0.40% 05/10/02 Nations Managed Index Fund 0.40% 05/10/02 Nations SmallCap Index Fund 0.40% 05/10/02
-9-
Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations Short-Intermediate Government Fund 0.30% 05/10/02 Nations Municipal Income Fund 0.50% 05/10/02 Nations Short-Term Municipal Income Fund 0.30% 05/10/02 Nations Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Short-Term Income Fund 0.30% 05/10/02 Nations Strategic Income Fund 0.50% 05/10/02 Nations Bond Fund 0.40% 05/10/02 Nations Florida Municipal Bond Fund 0.50% 05/10/02 Nations Florida Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Georgia Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Maryland Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations North Carolina Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations South Carolina Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Tennessee Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Texas Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Virginia Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Small Company Fund 0.90% 05/17/02 Nations Cash Reserves 0.15% 05/10/02 Nations Treasury Reserves 0.15% 05/10/02 Nations Municipal Reserves 0.15% 05/10/02 Nations Government Reserves 0.15% 05/10/02
-10-
Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations Tax-Exempt Reserves 0.15% 05/10/02 Nations Money Market Reserves 0.15% 05/10/02 Nations California Tax-Exempt Reserves 0.15% 05/10/02 Nations Convertible Securities Fund 0.65% 05/10/02 Nations California Municipal Bond Fund 0.50% 05/17/02 Nations Emerging Markets Fund 1.00% 05/10/02 Nations California Intermediate Municipal Bond Fund 0.40% 08/14/02 Nations SmallCap Core Fund 0.90% [DATE]
Approved: December 9, 1999 Last Amended: August 28, 2002 -11- IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 28th day of August, 2002. BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary -12- EX-99.23(D)(2) 4 dex9923d2.txt ASSUMPTION AGREEMENT Exhibit 99.23(d)(2) ASSUMPTION AGREEMENT WHEREAS, Nations Funds Trust, on behalf of its Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio and Nations LifeGoal Income and Growth Portfolio (collectively, the "Funds"), has entered into an investment advisory agreement with Banc of America Advisors, LLC (formerly Banc of America Advisors, Inc.) (the "Adviser") effective June 8, 2001 (the "Investment Advisory Agreement"); WHEREAS, Section 9 of the Investment Advisory Agreement contemplates that the Adviser may expressly assume the expenses incurred in the operation of the Funds; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and in the Investment Advisory Agreement, the Adviser agrees as follows: Expenses of the Funds. The Adviser hereby agrees to bear all fees and expenses of the Funds except taxes, brokerage fees and commissions, costs, including interest expenses, of borrowing money, extraordinary expenses, and any applicable Rule 12b-1 fees, shareholder servicing fees and/or shareholder administration fees. The expenses borne by the Adviser shall include, but not be limited to, custodian, transfer agent, legal and audit fees and costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, and the cost of preparing and printing prospectuses and statements of additional information distributed to the Funds' shareholders. IN WITNESS WHEREOF, the Adviser has caused this Agreement to be executed by its duly authorized officer designated below as of June 8, 2001. BANC OF AMERICA ADVISORS, LLC By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President EX-99.23(D)(3) 5 dex9923d3.txt INVESTMENT ADVISORY AGREEMENT-NATIONS FUNDS TRUST Exhibit 99.23(d)(3) INVESTMENT ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of August 28, 2002, by and between NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), and BANC OF AMERICA ADVISORS, LLC, a North Carolina limited liability company (the "Adviser"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each, a "Fund" and collectively, the "Funds"). 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 Trust desires that the Adviser manage the investment operations of the Funds and the Adviser desires to manage said operations; and WHEREAS, the Board of Trustees of the Trust (the "Board"), including a majority of the Trustees who are not "interested persons" (as defined herein) of any party to this Agreement, have approved this arrangement; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment of Adviser. The Trust hereby appoints the Adviser and the Adviser hereby agrees to manage the investment operations of each Fund subject to the terms of this Agreement and subject to the supervision of the Board. The Trust and the Adviser contemplate that certain duties of the Adviser under this Agreement may be delegated to one or more investment sub-adviser(s) (the "Sub-Adviser(s)") pursuant to separate investment sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)"). The Adviser may, in its discretion, provide services under this Agreement through its own employees or through one or more affiliated companies that are qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation. 2. Services of Adviser. The Adviser shall perform, or arrange for the performance of, the management services necessary for the investment operations of each Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly; (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund's procedures and as may be directed by the Trust; -1- (c) Assisting in the preparation of all shareholder communications, including shareholder reports, and participating in shareholder relations; (d) Making recommendations as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Board with respect to Fund investment policies and procedures, and carrying out such investment policies and procedures as are adopted by the Board; (f) Supplying reports, evaluations, analyses, statistical data and information to the Board or to the Funds' officers and other service providers as 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 required books and records with respect to the investment decisions and securities transactions for each Fund; (h) Furnishing any and all other services, subject to review by the Board, that the Adviser from time to time etermines to be necessary or useful to perform its obligations under this Agreement or as the Board may reasonably request from time to time. 3. Responsibilities of Adviser. In carrying out its obligations under this Agreement, the 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 Fund 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 Fund shares; (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds 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 Adviser will use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors that it deems relevant, including the -2- 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 Adviser may also consider whether such broker or dealer furnishes research and other information or services to the Adviser; (e) Adhere to the investment objective, strategies and policies and procedures of the Trust adopted on behalf of each Fund; and (f) Maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. In making investment recommendations for a Fund, the Adviser's investment advisory personnel will not inquire or take into consideration whether the issuers (or related supporting institutions) of securities proposed for purchase or sale for the Fund's account are customers of the commercial departments of its affiliates. In dealing with commercial customers, such commercial departments will not inquire or take into consideration whether securities of those customers are held by the Fund. 4. Confidentiality of Information. Each party agrees that it will treat confidentially all information provided by the other party regarding such other party's business and operations, including without limitation the investment activities or holdings of a Fund. 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. Delegation of Duties. Subject to the approval of the Board and, if required, the shareholders of the Funds, the Adviser may delegate to one or more Sub-Adviser(s) any or all of its duties hereunder, provided that the Adviser shall continue to supervise and monitor the performance of the duties delegated to the Sub-Adviser(s) and any such delegation shall not relieve the Adviser of its duties and obligations under this Agreement. The Adviser shall be solely responsible for compensating the Sub-Adviser(s) for performing any of the duties delegated to them. The Adviser may request that the Trust pay directly to the Sub-Adviser(s) the portion of the Adviser's compensation that the Adviser is obligated to pay to the Sub-Adviser(s). If the Trust agrees to such request, it will pay such portion to the Sub-Adviser(s) on behalf of the Adviser, thereby reducing the compensation paid to the Adviser by the amount paid directly to the Sub-Adviser(s). However, such an arrangement will not relieve the Adviser of its responsibility for compensating the Sub-Adviser(s). In the event that any Sub-Adviser appointed hereunder is terminated, the Adviser may provide investment advisory services pursuant to this Agreement through its own employees or through one or more affiliated companies that are -3- qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation or through other Sub-Adviser(s) as approved by the Trust in accordance with applicable law. 6. Services Not Exclusive. The services furnished by the Adviser hereunder are deemed not to be exclusive, and the 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 Adviser to be suitable for two or more accounts managed by the Adviser, the available securities or investments may be allocated in a manner believed by the 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 Fund or the size of the position obtainable for or disposed of by a Fund. Nothing in this Agreement shall limit or restrict the right of any of the Adviser's partners, officers or employees to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 7. Delivery of Documents. The Trust has furnished the Adviser with copies, properly certified or authenticated, of each of the following: (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 most recent prospectus(es) and statement(s) of additional information relating to each Fund (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 (c) any and all applicable policies and procedures approved by the Board. The Trust will promptly furnish the Adviser with copies of any and all amendments of or additions or supplements to the foregoing. 8. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records that it maintains for each Fund under this Agreement are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon request. The 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. 9. Expenses of the Funds. Except to the extent expressly assumed by the Adviser and except to any extent required by law to be paid or reimbursed by the Adviser, the Adviser -4- shall have no duty to pay any ordinary operating expenses incurred in the organization and operation of the Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other service providers' fees and expenses, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to Board and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders and interest payments and other fees or charges associated with any credit facilities established by or on behalf of the Funds. 10. Compensation. The Adviser shall perform its services pursuant to this Agreement at no charge to the Funds. In addition, the Adviser hereby agrees that it will charge identical fee rates, based on average daily net assets in each Fund, to all investors investing in each Fund, unless and until Commission and Internal Revenue Service rules, regulations, interpretations or orders permit otherwise. 11. Liability of Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by 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, or a loss resulting from willful misfeasance, bad faith or negligence on the part of the Adviser or any of its officers, directors, employees or agents, in the performance of their duties under this Agreement, or from reckless disregard by it of obligations and 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 Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund 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 Fund at least annually: (a) (i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act); and (b) by the affirmative vote of a majority of the Trustee 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. 13. Termination. This Agreement may be terminated without payment of any penalty at any time by: -5- (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities, upon sixty (60) days' written notice to the Adviser; or (b) the Adviser with respect to a Fund, upon sixty (60) days' written notice to the Trust. 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. 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. 15. 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, and that of the Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President. 16. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds 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 Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 17. 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. 18. 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. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. -6- 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 FUNDS TRUST on behalf of the Funds By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees BANC OF AMERICA ADVISORS, LLC By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President -7- SCHEDULE I Fund Effective Date - ---- -------------- Corporate Bond Portfolio August 28, 2002 Mortgage- and Asset-Backed Portfolio August 28, 2002 High Income Portfolio August 28, 2002 Approved: May 29, 2002 -8- EX-99.23(D)(4) 6 dex9923d4.txt ASSUMPTION AGREEMENT Exhibit 99.23(d)(4) ASSUMPTION AGREEMENT WHEREAS, Nations Funds Trust, on behalf of its Corporate Bond Portfolio, Mortgage- and Asset-Backed Portfolio and High Income Portfolio (collectively, the "Funds"), has entered into an investment advisory agreement with Banc of America Advisors, LLC (the "Adviser") dated August 28, 2002 (the "Investment Advisory Agreement"); WHEREAS, Section 9 of the Investment Advisory Agreement contemplates that the Adviser may expressly assume the expenses incurred in the operation of the Funds; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and in the Investment Advisory Agreement, the Adviser agrees as follows: Expenses of the Funds. The Adviser hereby agrees to bear all fees and expenses of the Funds except taxes, brokerage fees and commissions, costs, including interest expenses, of borrowing money, extraordinary expenses, and any applicable Rule 12b-1 fees, shareholder servicing fees and/or shareholder administration fees. The expenses borne by the Adviser shall include, but not be limited to, custodian, transfer agent, legal and audit fees and costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, and the cost of preparing and printing prospectuses and statements of additional information distributed to the Funds' shareholders. IN WITNESS WHEREOF, the Adviser has caused this Agreement to be executed by its duly authorized officer designated below as of August 28, 2002. BANC OF AMERICA ADVISORS, LLC By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President EX-99.23(D)(5) 7 dex9923d5.txt SUB-ADVISORY AGREEMENT Exhibit 99.23(d)(5) SUB-ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of March 30, 2000, by and between BANC OF AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), BANC OF AMERICA CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Sub-Adviser"), and NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each a "Fund" and collectively, the "Funds"). 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 Fund 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 Funds; 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 Fund 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 Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly; -1- (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund'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 as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Adviser and the Board with respect to Fund 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 Funds' 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 required books and records with respect to the investment decisions and securities transactions for each Fund; (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 Fund 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 Fund shares; (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds either directly with the issuer or with any -2- 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 Fund 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 Fund; (f) Maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. In making investment recommendations for a Fund, the Sub-Adviser's investment advisory personnel will not inquire or take into consideration whether the issuers (or related supporting institutions) of securities proposed for purchase or sale for a Fund's account are customers of the commercial departments of its affiliates. In dealing with commercial customers, such commercial departments will not inquire or take into consideration whether securities of those customers are held by the Fund. 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 Fund. 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 Fund or the size of the position obtainable -3- for or disposed of by a Fund. Nothing in this Agreement shall limit or restrict the right of any of the Sub-Adviser's partners, officers or employees to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 6. Delivery of Documents. The Trust will provide the Sub-Adviser with copies, properly certified or authenticated, of each of the following: (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 most recent prospectus(es) and statement(s) of additional information relating to each Fund (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 (c) 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 Fund 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 Funds. 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 Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other Fund service providers' fees and expenses, 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. 9. Compensation. Except as otherwise provided herein, for the services provided to each Fund 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 -4- 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 Fund with respect to compensation under this Agreement. The Adviser and the Sub-Adviser may, from time to time, agree to reduce, limit or waive the amounts payable hereunder with respect to one or more Funds for such period or periods they deem appropriate. 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, or a loss resulting from willful misfeasance, bad faith or negligence on the part of the Sub-Adviser or any of its officers, directors, employees or agents, in the performance of their duties under this Agreement, or from reckless disregard by it of obligations and duties under this Agreement. 11. 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 Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund 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 Fund at least annually: (a)(i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (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. 12. Termination. This Agreement may be terminated without payment of any penalty at any time by: (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund'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 Fund, 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 -5- 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. 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. 15. 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 One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President. 16. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds 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 Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 17. 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. 18. 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. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. -6- 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 FUNDS TRUST on behalf of the Funds 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 BANC OF AMERICA CAPITAL MANAGEMENT, INC. By: /s/ Michael E. Kenneally ------------------------------------- Michael E. Kenneally President -7- 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 Fund, computed daily and payable monthly at the annual rates listed below as a percentage of the average daily net assets of the Fund: Rate of Effective --------- Fund Compensation Date ---- ------------ ---- Nations MidCap Index Fund 0.10% 03/30/00 Nations Kansas Municipal Income Fund 0.07% 07/14/00 Nations Financial Services Fund 0.25% 03/29/01 Nations Asset Allocation Fund 0.25% 06/08/01 (non-equity portion) 03/27/02 (equity portion) Nations Government Securities Fund 0.15% 06/08/01 Nations LifeGoal Growth Portfolio 0.05% 06/08/01 Nations LifeGoal Balanced Growth Portfolio 0.05% 06/08/01 Nations LifeGoal Income and Growth Portfolio 0.05% 06/08/01 Nations MidCap Value Fund 0.25% 11/19/01 Nations LargeCap Value Fund 0.25% 11/19/01 Nations New York Tax-Exempt Reserves 0.033% 02/15/02 Nations Research Fund 0.25% 03/27/02 Nations Value Fund 0.25% 05/17/02 Nations Capital Growth Fund 0.25% 05/10/02 Nations MidCap Growth Fund 0.25% 05/10/02 -8- Rate of Effective --------- Fund Compensation Date ---- ------------ ---- Nations LargeCap Index Fund 0.10% 05/10/02 Nations Managed Index Fund 0.10% 05/10/02 Nations SmallCap Index Fund 0.10% 05/10/02 Nations Short-Intermediate Government Fund 0.15% 05/10/02 Nations Municipal Income Fund 0.07% 05/10/02 Nations Short-Term Municipal Income Fund 0.07% 05/10/02 Nations Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Short-Term Income Fund 0.15% 05/10/02 Nations Strategic Income Fund 0.15% 05/10/02 Nations Bond Fund 0.15% 05/10/02 Nations Florida Municipal Bond Fund 0.07% 05/10/02 Nations Florida Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations Georgia Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations Maryland Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations North Carolina Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations South Carolina Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations Tennessee Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations Texas Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Virginia Intermediate Municipal 0.07% 05/10/02 Bond Fund Nations Small Company Fund 0.25% 05/17/02 -9- Rate of Effective --------- Fund Compensation Date ---- ------------ ---- Nations Cash Reserves 0.033% 05/10/02 Nations Treasury Reserves 0.033% 05/10/02 Nations Municipal Reserves 0.033% 05/10/02 Nations Government Reserves 0.033% 05/10/02 Nations Tax-Exempt Reserves 0.033% 05/10/02 Nations Money Market Reserves 0.033% 05/10/02 Nations California Tax-Exempt Reserves 0.033% 05/10/02 Nations Convertible Securities Fund 0.25% 05/10/02 Nations California Municipal Bond Fund 0.07% 05/17/02 Nations California Intermediate Municipal 0.07% 08/14/02 Bond Fund Core Bond Portfolio 0.20% 08/28/02 Mortgage- and Asset-Backed Portfolio 0.20% 08/28/02 High Income Portfolio 0.30% 08/28/02 Nations SmallCap Core Fund 0.35% [DATE] Approved: December 9, 1999 Last Amended: August 28, 2002 -10- IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 28th day of August, 2002. BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President BANC OF AMERICA CAPITAL MANAGEMENT, LLC (formerly Banc of America Capital Management, Inc.) By: /s/ Michael E. Kenneally ------------------------ Michael E. Kenneally President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary -11- EX-99.23(E)(1) 8 dex9923e1.txt DISTRIBUTION AGREEMENT Exhibit 99.23(e)(i) DISTRIBUTION AGREEMENT NATIONS FUNDS TRUST Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Gentlemen: This is to confirm that, in consideration of the agreements hereinafter contained, the undersigned, Nations Funds Trust (the "Trust"), a Delaware business trust, has agreed that Stephens Inc. (the "Distributor") shall be, for the period of this Agreement, the exclusive distributor of the units of beneficial interest in all classes of shares ("Shares") of the investment portfolios of the Trust listed on Schedule I (individually, a "Fund" and collectively the "Funds"). Absent written notification to the contrary by either the Trust or the Distributor, each new investment portfolio established in the future shall automatically become a "Fund" for all purposes hereunder and shares of each new class established in the future shall automatically become "Shares" for all purposes hereunder as if set forth on Schedule I. 1. Services as Distributor. 1.1. The Distributor will act as agent for the distribution of Shares in accordance with the instructions of the Trust's Board of Trustees and the Trust's registration statement and prospectus then in effect under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit promptly any orders received by it for the purchase or redemption of Shares to the Trust or its transfer agent. 1.2. The Distributor agrees to use appropriate efforts to solicit orders for the sale of Shares and will undertake such advertising and promotion as it believes appropriate in connection with such solicitation. The Trust understands that the Distributor is and may in the future be the distributor of shares of other investment company portfolios including portfolios having investment objectives similar to those of the Funds. The Trust further understands that existing and future investors in the Funds may invest in shares of such other portfolios. The Trust agrees that the Distributor's duties to such portfolios shall not be deemed in conflict with its duties to the Trust under this paragraph 1.2. 1.3. The Distributor shall, at its own expense, finance such activities as it deems reasonable and which are primarily intended to result in the sale of Shares, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of prospectuses to other than current shareholders, and the printing and mailing of sales literature. The Distributor shall be responsible for reviewing and providing advice and counsel on all sales literature (e.g., advertisements, brochures and shareholder communications) with respect to each of the Funds. In addition, the Distributor will provide one 1 or more persons, during normal business hours, to respond to telephone questions with respect to the Funds. 1.4. All activities by the Distributor and its agents and employees as distributor of Shares shall comply with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended (the "1940 Act") by the Securities and Exchange Commission (the "SEC") or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.5. Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by other circumstances of any kind, the Trust's officers may decline to accept any orders for, or make any sales of Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.6. The Trust agrees at its own expense to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the registration or qualification of Shares for sale in such states as the Distributor may designate to the Trust and the Trust may approve, and the Trust shall pay all fees and other expenses incurred in connection with such registration or qualification. 1.7. The Trust shall furnish from time to time, for use in connection with the sale of Shares, such information with respect to the Funds and Shares as the Distributor may reasonably request; and the Trust warrants that the statements contained in any such information shall fairly show or represent what they purport to show or represent. The Trust shall also furnish the Distributor upon request with: (a) audited annual and unaudited semi-annual statements of the Trust's books and accounts with respect to each Fund, and (b) from time to time such additional information regarding the Funds' financial condition as the Distributor may reasonably request. 1.8. The Distributor may be reimbursed for all or a portion of the expenses described above to the extent permitted by a distribution plan adopted by the Trust on behalf of a Fund pursuant to Rule 12b-1 under the 1940 Act. No provision of this Agreement shall be deemed to prohibit any payments by a Fund to the Distributor or by a Fund or the Distributor to investment dealers, banks or other financial institutions through whom shares of the Fund are sold where such payments are made under a distribution plan adopted by the Trust on behalf of such Fund pursuant to Rule 12b-1 under the 1940 Act. In addition, the Distributor shall be entitled to retain any front-end sales charge imposed upon the sale of the Shares (and reallow a portion thereof) as specified in the Trust's registration statement and the Trust shall pay to the Distributor the proceeds from any contingent deferred sales charge imposed on the redemption of the shares as specified in the Trust's registration statement. 1.9. The Distributor will execute and deliver agreements with broker/dealers, financial institutions and other industry professionals based on the forms attached hereto or based on the additional forms of agreement approved from time to time by the Trust's Board of Trustees with respect to the various classes of shares of the Funds, including but not limited to forms of sales support agreements and shareholder servicing agreements approved in connection 2 with a distribution plan and/or shareholder servicing plan approved in accordance with Rule 12b-1 under the 1940 Act. 2. Representations; Indemnification. 2.1. The Trust represents to the Distributor that all registration statements and prospectuses filed by the Trust with the SEC under the 1933 Act, with respect to Shares have been prepared in conformity with the requirements of the 1933 Act and rules and regulations of the SEC thereunder. As used in this Agreement, the terms "registration statement" and "prospectus" shall mean any registration statement and then current prospectus (together with any related then current statement of additional information) filed with the SEC with respect to Shares, and any amendments and supplements thereto which at any time shall have been filed therewith. The Trust represents and warrants to the Distributor that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with the 1933 Act and the rules and regulations of the SEC; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement and prospectus become effective; and that neither any registration statement nor any prospectus when any registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of Shares. The Trust may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus which in light of future developments, may, in the opinion of the Trust's counsel, be necessary or advisable. The Trust shall promptly notify the Distributor of any advice given to it by the Trust's counsel regarding the necessity or advisability so to amend or supplement such registration statement or prospectus. If the Trust shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Trust of a written request from the Distributor to do so, the Distributor may, at its option, terminate this Agreement. The Trust shall not file any amendment to any registration statement or supplement to any prospectus without giving the Distributor reasonable notice thereof in advance; provided, however, that nothing contained in this Agreement shall in any way limit the Trust's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Trust may deem advisable, such right being in all respects absolute and unconditional. 2.2. The Trust authorizes the Distributor and dealers to use any prospectus in the form furnished from time to time in connection with the sale of Shares and represented by the Trust as being the then current form of prospectus. The Trust agrees to indemnify, defend and hold the Distributor, its several officers and directors, and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers and directors, or any such controlling person, may incur under the 1933 Act or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, to 3 state a material fact required to be stated in any registration statement or prospectus or necessary to make any statement in such documents not misleading; provided, however, that the Trust's agreement to indemnify the Distributor, its officers or directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or prospectus or in any financial or other statements in reliance upon and in conformity with any information furnished to the Trust by the Distributor or any affiliate thereof and used in the preparation thereof; and further provided that the Trust's agreement to indemnify the Distributor and the Trust's representations and warranties herein set forth shall not be deemed to cover any liability to the Trust or its shareholders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of the Distributor's reckless disregard of its obligations and duties under this Agreement. The Trust's agreement to indemnify the Distributor, its officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Trust's being notified of any action brought against the Distributor, its officers or directors, or any such controlling person, such notification to be given by letter or by telegram or transmitted by similar telecommunications device, addressed to the Trust at its principal office and sent to the Trust by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Trust of any such action shall not relieve the Trust from any liability which the Trust may have to the person against whom such action is brought by reason of any such untrue, or allegedly untrue, statement or omission, or alleged omission, otherwise than on account of the Trust's indemnity agreement contained in this paragraph 2.2. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Trust and approved by the Distributor, which approval shall not unreasonably be withheld. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing approved by the Distributor, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Trust does not elect to assume the defense of any such suit, or in case the Distributor reasonably does not approve of counsel chosen by the Trust, the Trust will reimburse the Distributor, its officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by the Distributor or them. The Trust's indemnification agreement contained in this paragraph 2.2 and the Trust's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor, its officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to the Distributor's benefit, to the benefit of its several officers and directors, and their respective estates, and to the benefit of the controlling persons and their successors. The Trust agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against the Trust or any of its officers or Trustees in connection with the issue and sale of any Shares. 2.3. The Distributor agrees to indemnify, defend and hold the Trust, its several officers and Trustees, and any person who controls the Trust within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and 4 expenses (including the costs of investigation or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Trust, its officers or Trustees or any such controlling person, may incur under the 1933 Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its officers or Trustees, or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished by the Distributor or any affiliate thereof to the Trust or its counsel and used in the Trust's registration statement or corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished by the Distributor or any affiliate thereof to the Trust or its counsel required to be stated in such answers or necessary to make such information not misleading. The Distributor's agreement to indemnify the Trust, its officers and Trustees, and any such controlling person, as aforesaid, is expressly conditioned upon the Distributor's being notified of any action brought against the Trust, its officers or Trustees, or any such controlling person, such notification to be given by letter or telegram addressed to the Distributor at its principal office in Little Rock, Arkansas and sent to the Distributor by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The Distributor shall have the right to control the defense of such action, with counsel of its own choosing, satisfactory to the Trust, if such action is based solely upon such alleged misstatement or omission on the Distributor's part or any affiliate thereof, and in any other event the Trust, its officers or Trustees or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify the Distributor of any such action shall not relieve the Distributor or any affiliate thereof from any liability which the Distributor or any affiliate thereof may have to the Trust, its officers or Trustees, or to such controlling person by reason of any such untrue or alleged untrue statement, or omission or alleged omission, otherwise than on account of the Distributor's indemnity agreement contained in this paragraph 2.3. 2.4. No Shares shall be offered by either the Distributor or the Trust under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act, or if and so long as a current prospectus, as required by Section 10(b) of the 1933 Act is not on file with the SEC; provided, however, that nothing contained in this paragraph 2.4 shall in any way restrict or have any application to or bearing upon the Trust's obligation to repurchase Shares from any shareholder in accordance with the provisions of the Trust's prospectus or Declaration of Trust. 2.5. The Trust agrees to advise the Distributor as soon as reasonably practicable: (a) of any request by the SEC for amendments to the registration statement or prospectus then in effect; 5 (b) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or of the initiation of any proceeding for that purpose; (c) of the happening of any event that makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; (d) of all actions of the SEC with respect to any amendment to any registration statement or prospectus which may from time to time be filed with the SEC; and (e) if a current prospectus is not on file with the SEC. For purposes of this section, informal requests by or acts of the staff of the SEC shall not be deemed actions of or requests by the SEC. 3. Confidentiality. The Distributor agrees on behalf of itself and its employees to treat confidentially and as proprietary information of the Trust all records and other information relative to the Funds and/or the Trust and its prior, present or potential shareholders, and not to 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 the Distributor 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. 4. Limitations of Liability. Except as provided in paragraph 2.3, the Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust or any Fund in connection with matters to which this agreement 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 of its obligations and duties under this agreement. 5. Term. This agreement shall become effective on the date of its execution and, unless sooner terminated as provided herein, shall continue in effect for a period of two years from the date written below. This Agreement shall thereafter continue from year to year, provided such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees, or (ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by the majority of the Trust's Trustees who are not parties to this agreement or interested persons (as defined in the 1940 Act) of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is not assignable and is terminable with respect to a Fund, 6 without penalty, on not less than sixty (60) days' notice, by the Trust's Board of Trustees, by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Fund, or by the Distributor. This agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). 6. Miscellaneous. 6.1. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 6.2. This agreement shall be governed by the laws of the State of Arkansas. 7. Counterparts. 7.1. This Agreement may be executed in any manner of counterparts, each of which shall be deemed an original. 7 Please confirm that the foregoing is in accordance with your understanding by indicating your acceptance hereof at the place indicated below, whereupon it shall become a binding agreement between us. Yours very truly, NATIONS FUNDS TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees Accepted: STEPHENS INC. By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Senior Vice President Dated as of February 14, 2000 8 SCHEDULE I Nations Funds Trust: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 9 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund 58. Nations California Intermediate Municipal Bond Fund 59. Corporate Bond Portfolio 60. Mortgage- and Asset-Backed Portfolio 61. High Income Portfolio 62. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 10 EX-99.23(G)(1) 9 dex9923g1.txt AMENDED AND RESTATED CUSTODY AGREEMENT Exhibit 99.23(g)(1) AMENDED AND RESTATED CUSTODY AGREEMENT THIS AGREEMENT is made as of the 2nd day of July, 2001 by and between The Bank of New York, a New York corporation authorized to do a banking business ("Custodian"), and Nations Funds Trust, a Delaware business trust (the "Trust"). W I T N E S S E T H WHEREAS, the Trust is a registered open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, by a Custody Agreement made as of the 14th day of February, 2000 (the "Original Custody Agreement") the Trust retained Custodian to serve as custodian for the Trust, on behalf of its portfolios listed on Schedule I (individually a "Fund" and collectively the "Funds") and to provide the services described therein, and Custodian agreed to serve and to provide such services; and WHEREAS, the Trust and Custodian desire to amend and restate the Original Custody Agreement in a single agreement (hereinafter the "Agreement"); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Trust and Custodian hereby agree as follows: 1. Appointment. The Trust hereby appoints Custodian to act as custodian of its portfolio securities, cash and other property on the terms set forth in this Agreement. Custodian accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Paragraph 23 hereof. Custodian agrees to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. The Trust may from time to time issue separate series or classes, and classify and reclassify shares of any such series or class. The Trust shall promptly specify to Custodian in writing such series or classes, or any reclassification and thereafter Custodian shall identify to each such series or class Property, as hereinafter defined, belonging to such series or class, and such reports, confirmations and notices to the Trust as are called for under this Agreement shall identify the series or class to which such report, confirmation or notice pertains. 2. Delivery of Documents. The Trust has furnished Custodian with copies properly certified or authenticated of each of the following: (a) votes of the Trust's Board of Trustees authorizing the appointment of Custodian as custodian of portfolio securities, cash and other property of the Trust, respectively, and approving and consenting to this Agreement; (b) schedules identifying and containing the signatures of all of the Trust's officers and any other persons authorized to issue Oral Instructions and to sign Written Instructions, as hereinafter defined, on behalf of the Funds of the Trust; (c) the Trust's current registration statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended (the "1933 Act"), and under the 1940 Act (File Nos. 333-89661 and 811-09645), as filed with the Securities and Exchange Commission (the "SEC"), relating to the Funds' shares of beneficial interest, without par value (the "Shares"); (d) the current prospectus(es) and statement(s) of additional information of each of the Funds, including all amendments and supplements thereto (collectively the "Prospectuses"); and (e) a copy of the opinion of counsel for the Trust, filed with the SEC as part of the Trust's current Registration Statement. The Trust will furnish Custodian from time to time with copies, properly certified or authenticated, of all amendments of or supplements to any of the foregoing, if any. 3. Definitions. (a) "Authorized Person". As used in this Agreement, the term "Authorized Person" means any of the Trust's officers, and any other person, whether or not any such person is an officer or employee of the Trust, duly authorized by the Board of Trustees of the Trust to give Oral and Written Instructions to Custodian on behalf of the Trust and listed on a schedule provided to Custodian pursuant to Section 2 of this Agreement. Authorized Persons duly authorized by the Board of Trustees of the Trust to buy and sell foreign currency on a spot and forward basis and options to buy and sell foreign currency are denoted by an asterisk thereon. (b) "Book-Entry System". As used in this Agreement, the term "Book-Entry System" means the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees and any book-entry system maintained by a clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"). I-2 (c) "Composite Currency Unit". Shall mean the European Currency Unit or any other composite unit consisting of the aggregate of specified amounts of specified Currencies as such unit may be constituted from time to time. (d) "Currency". Shall mean money denominated in a lawful currency of any country or the European Currency Unit. (e) "FX Transaction". Shall mean any transaction for the purchase by one party of an agreed amount in one Currency against the sale by it to the other party of an agreed amount in another Currency. (f) "Instructions". Shall mean instruction communications transmitted by appropriately safeguarded (whether by password protection or other means) electronic or telecommunications media including but not limited to S.W.I.F.T., LASER, computer-to-computer interface, dedicated transmission line and tested telex. (g) "Oral Instructions". As used in this Agreement, the term "Oral Instructions" means oral instructions actually received by Custodian from an Authorized Person or from a person reasonably believed by Custodian to be an Authorized Person. (h) "Officer's Certificate". The term "Officer's Certificate" as used in this Agreement means instructions delivered by hand, mail, tested telegram, cable, telex, or facsimile sending device, and actually received by Custodian signed or reasonably believed by Custodian to be signed by two officers of the Trust listed on a schedule provided to Custodian pursuant to Section 2 of this Agreement. (i) "Property". The term "Property", as used in this Agreement, means: (i) any and all securities and other property of the Trust which the Trust may from time to time deliver to Custodian, as applicable, or which Custodian may from time to time hold for the Trust; (ii) all income in respect of any securities or other property described in immediately preceding clause (i); (iii) all proceeds of sales of any of such securities or other property described in preceding clause (i) actually received by Custodian; and (iv) proceeds of the sale of Shares received by Custodian from time to time from or on behalf of the Trust. (j) "Securities Depository". As used in this Agreement, the term "Securities Depository" shall not include any Eligible Securities Depository as defined in Paragraph 27B hereof and shall mean The Depository Trust Company, a clearing agency I-3 registered with the SEC or its successor or successors and its nominee or nominees; and shall also mean any other registered clearing agency, its successor or successors specifically identified in a certified copy of a vote of the Trust's Board of Trustees approving deposits by Custodian therein. (k) "Written Instructions". As used in this Agreement, "Written Instructions" means instructions delivered by hand, mail, tested telegram, cable, telex, or facsimile sending device, and actually received by Custodian, signed or reasonably believed by Custodian to be signed by an appropriate number of Authorized Person(s), and the term Written Instructions shall also include Instructions, except that Instructions need not be signed or reasonably believed to be signed by any Authorized Person(s) where such Instructions are transmitted by Software pursuant to Paragraph 26A. A fax receipt or comparable confirmation of transmission of any Written Instructions shall be deemed evidence of actual receipt by Custodian. 4. Delivery and Registration of the Property. The Trust shall deliver or cause to be delivered to Custodian all securities and all monies owned by the Funds, including cash received for the issuance of Shares, at any time during the period of this Agreement, except for securities and monies to be delivered to any sub-custodian appointed, with approval of the Trust, by Custodian pursuant to Paragraphs 7, 27, or 28(g) hereof. Custodian will not be responsible for such securities and such monies until actually received by it. All securities delivered to Custodian or any such sub-custodian (other than in bearer form) shall be registered in the name of the Fund or in the name of a nominee of a Fund or in the name of Custodian or any nominee of Custodian (with or without indication of fiduciary status) or in the name of any sub-custodian or any nominee of such sub-custodian appointed, with approval of the Trust, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be properly endorsed and in form for transfer satisfactory to Custodian. 5. Voting and Other Rights. With respect to all securities, however registered, it is understood that the voting and other rights and powers shall be exercised by the Trust. Custodian's only duty with respect to such rights shall be to mail to the Trust within two (2) business days following receipt by Custodian any documents received by Custodian as custodian, including notices of corporate action, proxies, proxy soliciting materials and offering circulars, with any elections or proxies for securities registered in a nominee name executed by such nominee. In addition, Custodian shall provide notice of Custodian's receipt of such documents by electronic means (e.g., posting notice on LASER), as agreed between the parties. Where warrants, options, tenders or other securities have fixed expiration dates, the Trust understands that in order for Custodian to act, Custodian must receive the Trust's instructions at its offices in New York, addressed as Custodian may from time to time request, by no later than noon (New York City time) at least one (1) business day prior to the last scheduled date to act with respect thereto (or such earlier date or time as Custodian may reasonably notify the Trust). Absent Custodian's timely receipt of such instructions, such instructions will I-4 expire without liability to Custodian. Custodian shall have no duty to forward to the Trust any annual, quarterly or special reports issued by companies whose securities are held by Custodian hereunder. 6. Receipt and Disbursement of Money. (a) Custodian shall open and maintain a custody account for each Fund of the Trust, subject only to draft or order by Custodian acting pursuant to the terms of this Agreement, and, subject to Paragraphs 7, 27, or 28(g) hereof, shall hold in such account, subject to the provisions hereof, all cash received by it from or for the Funds. Custodian shall make payments of cash to, or for the account of, each Fund from such cash only: (i) for the purchase of securities for the Funds as provided in Paragraph 14 hereof; (ii) upon receipt of an Officer's Certificate for the payment of dividends or other distributions on or with respect to Shares, or for the payment of interest, taxes, administration, distribution or advisory fees or expenses which are to be borne by the Funds under the terms of this Agreement and, with respect to each Fund, and under the terms of any investment advisory agreements, administration agreements or distribution agreements; (iii) upon receipt of Written Instructions for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Funds and held by or to be delivered to Custodian; (iv) to a sub-custodian pursuant to Paragraphs 7, 27, or 28(g) hereof; (v) for the redemption of Shares; or (vi) upon receipt of an Officer's Certificate for other corporate purposes. (b) Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as Custodian for the Funds. 7. Receipt of Securities. (a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g) hereof, and except as otherwise directed by Oral or Written Instructions described in Paragraph 11 hereof, Custodian shall hold and physically segregate in a separate account with respect to each Fund, identifiable from those of any other person, all securities and non-cash property received by it for the Funds. All such securities and non-cash property are to be held or disposed of by Custodian for each Fund pursuant to the terms of this Agreement. In the absence of Written Instructions accompanied by a certified vote authorizing the specific transaction by the Trust's Board of Trustees, and subject to Paragraph 25 hereof, Custodian shall have no power or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such securities and investments, except in accordance with the express terms provided for in this Agreement. In no case may any Trustee, officer, employee or agent of the Trust withdraw any securities. In connection with its duties under this Paragraph 7(a), Custodian may enter into sub-custodian agreements with other banks or trust companies for the receipt of certain securities and cash to be held by Custodian for the account of a Fund pursuant to this Agreement, provided Custodian obtains the prior written approval of the Trust to any such sub-custody arrangement. Custodian will provide the Trust with a copy of each sub-custodian agreement it executes I-5 pursuant to this Paragraph 7(a). Custodian shall be liable for acts or omissions of any such sub-custodian selected by it pursuant to this Paragraph 7(a), under the standards of care provided for herein, except for any such sub-custodian engaged at the specific direction of the Funds. Notwithstanding anything herein to the contrary, this Paragraph 7(a) shall not apply to Custodian's engagement of foreign sub-custodians, which shall instead be governed by Paragraph 27 hereof. (b) Promptly after the close of business on each day, Custodian shall furnish the Trust with confirmations and a summary of all transfers to or from the account of each Fund during said day. Where securities are transferred to the account of any Fund established at a Securities Depository or the Book Entry System pursuant to Paragraph 8 herein, Custodian shall also, by book-entry or otherwise, identify as belonging to such Fund the quantity of securities in a fungible bulk of securities registered in the name of Custodian (or its nominee) or shown in Custodian's account on the books of a Securities Depository or the Book-Entry System. At least monthly and from time to time, Custodian shall furnish the Trust with a detailed statement of the Property held for each Fund under this Agreement. (c) Notwithstanding any provision elsewhere contained herein, Custodian shall not be required to obtain possession of any instrument or certificate representing any futures contract, any option, or any futures contract option until after it shall have determined, or shall have received an Officer's Certificate from the Trust stating that any such instruments or certificates are available. The Trust shall deliver to Custodian such an Officer's Certificate no later than the business day preceding the availability of any such instrument or certificate. Prior to such availability, Custodian shall comply with the 1940 Act in connection with the purchase, sale, settlement, closing out or writing of futures contracts, options, or futures contract options by making payments or deliveries specified in such Officer's Certificates or Written Instructions received by Custodian in connection with any such purchase, sale, writing, settlement or closing out upon its receipt from a broker, dealer, or futures commission merchant of a statement or confirmation reasonably believed by Custodian to be in the form customarily used by brokers, dealers, or future commission merchants with respect to such futures contracts, options, or futures contract options, as the case may be, confirming that the same is held by such broker, dealer or futures commission merchant, in book-entry form or otherwise, in the name of Custodian (or any nominee of Custodian) as Custodian for the Fund, provided, however, that notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments to or deliveries from any margin account, and payments with respect to future contracts, options, or future contract options to which a margin account relates, shall be made in accordance with the terms and conditions of the Trust's relevant margin account agreement. Whenever any such instruments or certificates are available, Custodian shall, notwithstanding any provision in this Agreement to the contrary, make payment for any futures contract, option, or futures contract option for which such instruments or such certificates are available against the delivery to Custodian of such instrument or such certificate, and deliver any futures I-6 contract, option or futures contract option for which such instruments or such certificates are available only against receipt by Custodian of payment therefor. Any such instrument or certificate delivered to Custodian shall be held by Custodian hereunder in accordance with, and subject to, the provisions of this Agreement. 8. Use of Securities Depository or the Book-Entry System. The Trust shall deliver to Custodian a certified vote of the Board of Trustees of the Trust approving, authorizing and instructing Custodian on a continuous and ongoing basis until instructed to the contrary by Written Instructions: (i) to deposit in a Securities Depository or the Book-Entry System all securities of the Funds held hereunder eligible for deposit therein, and (ii) to utilize a Securities Depository or the Book-Entry System to the extent possible in connection with the performance of its duties hereunder, including without limitation, settlements of purchases and sales of securities by the Funds, and deliveries and returns of securities loaned, subject to repurchase agreements or used as collateral in connection with borrowings. Without limiting the generality of such use, the following provisions shall apply thereto: (a) Securities and any cash of the Funds deposited by Custodian in a Securities Depository or the Book-Entry System will at all times be segregated from any assets and cash controlled by Custodian in other than a fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof, Custodian and its sub-custodians, if any, will pay out money only upon receipt of securities and will deliver securities only upon receipt of money, absent Written Instructions to the contrary. (b) All books and records maintained by Custodian that relate to the Funds' participation in a Securities Depository or the Book-Entry System will at all times during Custodian's regular business hours be open to inspection by the Trust's duly authorized employees or agents and the Trust's independent auditors in accordance with applicable regulations, it being understood, however, that such records may be kept in an off-site Custodian storage location and the Trust will be furnished with all information in respect of the services rendered to it as it may require. (c) Custodian will provide the Trust with copies of any report obtained by Custodian on the system of internal accounting control of the Securities Depository or Book-Entry System promptly after receipt of such a report by Custodian. Custodian will also provide the Trust with such reports on its own system of internal control as the Trust may reasonably request from time to time. 9. Instructions Consistent With the Charter, Etc. Unless otherwise provided in this Agreement, Custodian shall act only upon Officer's Certificates, Oral Instructions and/or Written Instructions. Custodian may assume that any Officer's Certificate, Oral Instructions or Written Instructions received hereunder are not in any way inconsistent with any provision of the Declaration of Trust or any vote of the Trust's Board of Trustees, or any committee thereof. Custodian shall be entitled to rely upon any Oral Instructions or Written Instructions actually received by Custodian pursuant to this I-7 Agreement, and upon any certificate, oral instructions, or written instructions reasonably believed by Custodian to be an Officer's Certificate, Oral Instructions or Written Instructions. The Trust agrees to forward to Custodian, Written Instructions confirming Oral Instructions in such manner that the Written Instructions are received by Custodian at the close of business of the same day that such Oral Instructions are given to Custodian. The Trust agrees that the fact that such confirming Written Instructions are not received by Custodian shall in no way affect the validity of any of the transactions authorized by the Trust by giving Oral Instructions, and that Custodian's records with respect to the content of Oral Instructions shall be controlling. 10. Transactions Not Requiring Instructions. Custodian is authorized to take the following action without Oral Instructions, Written Instructions, or an Officer's Certificate: (a) Collection of Income and Other Payments. Custodian shall subject to Paragraph 28(f) hereof: (i) Collect and receive for the account of any Fund, all income and other payments and distributions, including (without limitation) stock dividends, rights, warrants and similar items, included or to be included in the Property of any Fund, and promptly advise the Trust of such receipt and shall credit such income, as collected, to such Fund of the Trust. From time to time, Custodian may elect, but shall not be so obligated, to credit the account with interest, dividends or principal payments on the payable or contractual settlement date, in anticipation of receiving same from a payor, central depository, Securities Depository, broker or other agent employed by the Trust or Custodian. Any such crediting and posting shall be at the Trust's sole risk, and Custodian shall be authorized to reverse (A) any such advance posting in the event it does not receive good funds from any such payor, central depository, Securities Depository, broker or agent, and (B) any other payment or crediting, including, without limitation, payments made by check or draft, in the event it does not receive good funds or final payment; (ii) With respect to securities of foreign issue, and subject to Paragraph 27 hereof, effect collection of dividends, interest and other income, and to promptly transmit to the Trust all reports, written information or notices actually received by Custodian as Custodian, including notices of any call for redemption, offer of exchange, right of subscription, reorganization, or other proceedings affecting such securities, or any default in payments due thereon. It is understood, however, that Custodian shall be under no responsibility for any failure or delay in effecting such collections or giving such notice with respect to securities of foreign issue, regardless of whether or not the relevant information is published in any financial service available to it unless such failure or delay is due to Custodian's own negligence. Collections of income in foreign currency are, to the extent possible, to be converted into United States dollars unless otherwise instructed in writing, and in effecting such conversion Custodian I-8 may use such methods or agencies as it may see fit, including the facilities of its own foreign division at customary rates. All risk and expenses incident to such collection and conversion are for the account of the Funds and Custodian shall have no responsibility for fluctuations in exchange rates affecting any such conversions; (iii) Endorse and deposit for collection in the name of the Trust and each of its Funds, checks, drafts, or other orders for the payment of money on the same day as received; (iv) Receive and hold for the account of each of the Fund's securities received by the Funds as a result of a stock dividend, share split-up or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any portfolio securities of the Funds held by Custodian hereunder; (v) Present for payment and collect the amount payable upon all securities which may mature or be called, redeemed or retired, or otherwise become payable on the date such securities become payable, but, with respect to calls, early redemptions, or early retirements, only if Custodian either: (i) receives a written notice of the same, or (ii) notice of the same appears in one or more of the publications then listed in Appendix A hereto, which Appendix may be amended to add other publications at any time by Custodian without prior notice to or consent from the Trust and which may be amended to delete a publication with the prior notice and consent from the Trust; (vi) Subject to Paragraphs 28(e) and (f) hereof, take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts and other negotiable instructions; and (vii) With respect to domestic securities, to exchange securities in temporary form for securities in definitive form, to effect an exchange of the shares where the par value of stock is changed, and to surrender securities at maturity or when advised by the Trust or the investment adviser to the Trust of an earlier call for redemption, against payment therefor in accordance with accepted industry practice. When fractional shares of stock of a declaring corporation are received as a stock distribution, Custodian is authorized to sell the fraction received and credit the Trust's account. Unless specifically instructed to the contrary in writing, Custodian is authorized to exchange securities in bearer form for securities in registered form. If any Property registered in the name of a nominee of Custodian is called for partial redemption by the issuer of such Property, Custodian is authorized to allot the called portion to the respective beneficial holders of the Property in such manner deemed to be fair and equitable by Custodian in its reasonable discretion. I-9 (b) Miscellaneous Transactions. Custodian is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases: (i) for examination by a broker selling for the account of the Trust in accordance with street delivery custom; (ii) for the exchange for interim receipts or temporary securities for definitive securities; (iii) for transfer of securities into the name of the Funds or Custodian or a nominee of either, or for exchange of securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to Custodian. 11. Transactions Requiring Instructions. Upon receipt of Oral or Written Instructions, and not otherwise, Custodian, directly or through the use of a Securities Depository or the Book-Entry System, shall: (a) execute and deliver to such persons as may be designated in such Oral or Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Funds as owners of any securities may be exercised; (b) deliver any securities held for any Fund against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (c) deliver any securities held for any Fund to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, against receipt of such certificates or deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (d) make such transfers or exchanges of the assets of any Fund and take such other steps as shall be stated in said instructions to be for the purposes of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Funds; (e) subject to Paragraph 25(b) hereof, release securities belonging to any Fund to any bank or trust company for the purpose of pledge or hypothecation to secure any loan incurred by such Fund; provided, however, that securities shall be released only upon payment to Custodian of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, subject to I-10 proper prior authorization, further securities may be released for that purpose; and pay such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan; (f) deliver any securities held for any Fund upon the exercise of a covered call option written by such Fund on such securities; (g) release and deliver securities owned by a Fund in connection with any repurchase agreement entered into on behalf of such Fund, but subject to Paragraph 28(m) hereof, only on receipt of payment therefor; and pay out monies of such Fund in connection with such repurchase agreements, but only upon the delivery of the securities; (h) otherwise transfer, exchange or deliver securities in accordance with Oral or Written Instructions specifying the purpose of such transfer, including without limitation, loans of securities, short sales, or reverse repurchase agreements, and subject to Paragraph 7(a) hereof. 12. Segregated Accounts. Custodian shall upon receipt of Written or Oral Instructions establish and maintain a segregated account or accounts on its records for and on behalf of any Fund, into which account or accounts shall be credited, but only pursuant to an Officer's Certificate or Written Instructions specifying the particular securities and/or amount of cash, cash and/or securities, including securities in the Book-Entry System: (i) for the purposes of compliance by the Funds and the Trust with the procedures required by a securities or option exchange, (ii) for the purpose of compliance by the Funds and the Trust with the 1940 Act and Release No. 10666 or any subsequent release, releases or any other guidance of the SEC relating to the maintenance of segregated accounts by registered investment companies, and (iii) for other proper corporate purposes. 13. Dividends and Distributions. (a) The Trust shall furnish Custodian with appropriate evidence of action by the Trust's Board of Trustees declaring and authorizing the payment of any dividends and distributions. Upon receipt by Custodian of an Officer's Certificate with respect to dividends and distributions declared by the Trust's Board of Trustees and payable to interestholders of any Fund who are entitled to receive cash for fractional shares and those who have elected in the proper manner to receive their distributions on dividends in cash, and in conformance with procedures mutually agreed upon by Custodian and the Trust, and the Trust's administrator or transfer agent, Custodian shall pay to the Fund's transfer agent, as agent for the interestholders, an amount equal to the amount indicated in said Officer's Certificate as payable by the Fund to such interestholders for distribution in cash by the transfer agent to such interestholders. I-11 (b) Custodian may enter into separate custodial agreements with various futures commission merchants ("FCMs") that the Trust uses (each a "FCM Agreement"), pursuant to which the Funds' margin deposits in any transactions involving futures contracts and options on futures contracts will be held by Custodian in accounts (each a "FCM Account") subject to the disposition by the FCM involved in such contracts in accordance with the customer contract between the FCM and the Trust ("FCM Contract"), SEC rules governing such segregated accounts, Commodity Futures Trading Commission ("CFTC") rules and the rules of the applicable commodities exchange. Such FCM Agreements shall only be entered into by Custodian upon receipt by Custodian of Written Instructions from the Trust which state that: (i) an FCM Contract has been entered into; (ii) the Trust is in compliance with all the rules and regulations of the CFTC; and (iii) the FCM Agreement is acceptable to the Trust. Transfers of initial margin shall be made into a FCM Account only upon Written Instructions; transfers of premium and variation margin may be made into an FCM Account pursuant to Oral Instructions. Transfers of funds from a FCM Account to the FCM for which Custodian holds such an account may only occur in accordance with the terms of the FCM Agreement. 14. Purchase of Securities. Promptly after each purchase of securities by the Trust on behalf of any Fund, the Trust shall deliver to Custodian Oral or Written Instructions specifying with respect to each such purchase: (a) the name of the issuer and the title of the securities; (b) the number of shares of the principal amount purchased and accrued interest, if any; (c) the dates of purchase and settlement; (d) the purchase price per unit; (e) the total amount payable upon such purchase; (f) the name of the person from whom or the broker through whom the purchase was made; and (g) the Fund for which the purchase was made. Custodian shall upon receipt of securities purchased by or for the Trust pay out of the monies held for the account of the Trust the total amount payable to the person from whom or the broker through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Oral or Written Instructions. 15. Sales of Securities. Promptly after each sale of securities by the Funds, the Trust shall deliver to Custodian Oral or Written Instructions, specifying with respect to each such sale: (a) the name of the issuer and the title of the security; (b) the number of shares or principal amount sold, and accrued interest, if any; (c) the dates of sale; (d) the sale price per unit; (e) the total amount payable to the Trust upon such sale; (f) the name of the broker through whom or the person to whom the sale was made; and (g) the Fund for which the sale was made. Custodian shall, subject to Paragraph 28(m) hereof, deliver the securities against payment of the total amount payable to the Trust upon such sale, provided that the same conforms to the total amount payable as set forth in such Oral and Written Instructions. 16. Records. The books and records pertaining to the Funds and the Trust which are in the possession of Custodian shall be the property of the Trust. Such books I-12 and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The SEC, the Trust, or the Trust's authorized representatives, shall have access to such books and records at all times during Custodian's normal business hours. Upon the reasonable request of the Trust, copies of any such books and records shall be provided by Custodian to the Trust or the Trust's authorized representative, and the Trust shall reimburse Custodian reasonable expenses for providing such copies. Upon reasonable request of the Trust, Custodian shall provide in hard copy, tape or on micro-film, or such other medium as agreed to among the Trust and Custodian, and any books and records maintained by Custodian. 17. Reports. (a) Custodian shall furnish the Trust the following reports: (i) such periodic and special reports as the Trust may reasonably request from time to time; (ii) a monthly statement summarizing all transactions and entries for the account of each Fund; (iii) a monthly report of portfolio securities belonging to each Fund showing the adjusted average cost of each issue and market value at the end of such month; (iv) a monthly report of the cash account of each Fund showing disbursements; (v) the reports to be furnished to the Trust pursuant to Rule 17f-4 under the 1940 Act; and (vi) such other information as may be agreed upon from time to time between the Trust and Custodian. (b) Subject to Paragraphs 5 and 27(g) hereof, Custodian shall transmit promptly to the Trust any proxy statement, proxy materials, notice of a call or conversion or similar communications actually received by Custodian as custodian of the Property. (c) Custodian shall report as the market value at the end of each month the last closing bid, offer or sale price to the extent, and as the same, is furnished to Custodian by a pricing or similar service utilized or subscribed to by Custodian. Custodian shall not be responsible for, have any liability with respect to, or be under any duty to inquire into, nor deemed to make any assurances with respect to, the accuracy or completeness of such information, even if The Bank of New York in performing services for others, including services similar to those performed hereunder, receives different valuations of the same or different securities of the same issuer. I-13 18. Cooperation with Accountants. Custodian shall cooperate with the Trust's independent certified public accountants and shall take all reasonable action in the performance of its obligations under this Agreement, to assure that the necessary information is made available to such accountants. 19. Confidentiality. Custodian agrees on behalf of itself and its employees to treat all record and other information relative to the Trust, its prior, present or potential interestholders, its service providers and its prior, present or potential customers, as confidential information, and to protect and safeguard the same to the extent required by applicable law, provided, however, that Custodian may make such disclosure as required by applicable law, regulation, court order, decrees or legal process and upon receipt of any of the foregoing requiring such disclosure, Custodian's only obligation shall be to notify the Trust thereof. Custodian further agrees not to otherwise 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. 20. Equipment Failures. In the event of equipment failures beyond Custodian's control, Custodian shall take reasonable steps to minimize service interruptions but shall not have any further liability with respect thereto. Notwithstanding the foregoing, Custodian shall maintain sufficient back up electronic data processing equipment to enable Custodian to fulfill its obligations under this Agreement consistent with standard industry practices. 21. Right to Receive Advice. (a) Advice of Fund. If Custodian shall be in doubt as to any action to be taken or omitted by Custodian, it may request, and shall receive, from the Trust clarification or advice, including Oral or Written Instructions. (b) Advice of Counsel. If Custodian shall be in doubt as to any question of law involved in any action to be taken or omitted by Custodian, it may request at its option advice from its own counsel, at its own expense, or advice from the Trust's counsel. (c) Conflicting Advice. In case of conflict between directions, advice or Oral or Written Instructions received by Custodian pursuant to subparagraph (a) of this paragraph and advice received by Custodian pursuant to subparagraph (b) of this paragraph, Custodian shall be entitled to rely on and follow the advice received pursuant to subparagraph (b) alone. (d) Protection of Custodian. Custodian shall be protected in any action or inaction which it takes or omits to take in reliance on any directions, advice or Oral or Written Instructions received pursuant to subparagraphs (a) or (b) of this section which it, after receipt of any such directions, advice or Oral or Written Instructions, in good faith reasonably believes to be consistent with such directions, advice or Oral or I-14 Written Instructions, as the case may be. Nothing in this Paragraph 21 shall be construed as imposing upon Custodian any obligation: (i) to seek such directions, advice or Oral or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral or Written Instructions when received, unless, under the terms or another provision of this Agreement, the same is a condition to Custodian's properly taking or omitting to take such action. Nothing in this Paragraph 21(d) shall excuse Custodian when an action or omission on the part of Custodian constitutes willful misfeasance or bad faith, or negligence or reckless disregard by Custodian of its duties under this Agreement. 22. Compliance with Governmental Rules and Regulations. Custodian undertakes to comply with the laws, rules and regulations of governmental authorities having jurisdiction over Custodian and its express duties hereunder. 23. Compensation. As compensation for the services rendered by Custodian during the term of this Agreement, the Trust shall pay to Custodian, in addition to reimbursement of its out-of-pocket expenses, such compensation as may be agreed upon from time to time in writing by the Trust and Custodian as set forth in Schedule III. 24. Indemnification. The Trust agrees to indemnify Custodian against, and hold harmless from all taxes, charges, expenses (including reasonable fees and expenses of counsel), assessments, claims, losses, demands and liabilities whatsoever (including, without limitation, liabilities arising under the 1933 Act, the 1934 Act and the 1940 Act, and any state and foreign securities laws, all as currently in effect or as may be amended from time to time) and expenses, including without limitation, reasonable attorney's fees and disbursements, howsoever arising or incurred because of or in connection with this Agreement, except for such liability, claim, loss, demand, charge, expense, tax or assessment arising out of Custodian's, or such nominees', willful misconduct or negligence or reckless disregard of its duties under this Agreement. For the purposes of this Agreement, including, without limitation, for purposes of Paragraphs 24 and 28, neither Custodian's acceptance of Instructions in accordance with Paragraph 26A nor Custodian's use of Foreign Sub-Custodians pursuant to agreements that do not permit actual examination by independent public accountants, nor the denial of examination by any Foreign Sub-Custodian, as defined in Paragraph 27, shall, in and of itself, constitute, or be deemed to constitute, a breach by Custodian of this Agreement or negligence, willful misconduct, or reckless disregard of its duties by Custodian, provided the relevant agreement between Custodian and a Foreign Sub-Custodian satisfies the requirements of Rule 17f-5. 25. Overdrafts or Indebtedness. (a) Custodian shall advance funds under this Agreement with respect to any Fund which results in an overdraft because the moneys held by Custodian in the separate account for such Fund shall be insufficient to pay the total amount payable upon a purchase of securities by such Fund, as set forth in an Officer's Certificate or Oral or Written Instructions, or which results in an overdraft in the separate account of such Fund I-15 for some other reason, or if the Trust is for any other reason indebted to Custodian, including any indebtedness to The Bank of New York under the Trust's Cash Management and Related Services Agreement, (except a borrowing for investment or for temporary or emergency purposes using securities as collateral pursuant to a separate agreement and subject to the provisions of Paragraph 25(b) hereof), such overdraft or indebtedness shall be deemed to be a loan made by Custodian to the Trust for such Fund payable on demand and shall bear interest from the date incurred at a rate per annum (based on a 360-day year for the actual number of days involved) equal to the overdraft rate specified in Schedule III to this Agreement. In addition, the Trust hereby agrees that to the extent of such overdraft or indebtedness, Custodian shall have a continuing lien, security entitlement and security interest in and to any property at any time held by it for the benefit of such Fund or in which the Fund may have an interest which is then in Custodian's possession or control or in possession or control of any third party acting on Custodian's behalf. The Trust authorizes Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Fund's credit on Custodian's books. In addition, the Trust hereby covenants that on each Business Day on which either it intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a third party, or which next succeeds a Business Day on which at the close of business the Trust had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall prior to 1:00 p.m., New York City time, advise Custodian, in writing, of each such borrowing, shall specify the Fund to which the same relates, and shall not incur any indebtedness not so specified other than from Custodian. (b) The Trust will cause to be delivered to Custodian by any bank (including, if the borrowing is pursuant to a separate agreement, Custodian) from which it borrows money for investment or for temporary or emergency purposes using securities held by Custodian hereunder as collateral for such borrowings, a notice or undertaking in the form currently employed by such bank setting forth the amount which such bank will loan to the Trust against delivery of a stated amount of collateral. The Trust shall promptly deliver to Custodian Written Instructions specifying with respect to each such borrowing: (a) the Fund to which such borrowing relates; (b) the name of the bank; (c) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (d) the time and date, if known, on which the loan is to be entered into; (e) the date on which the loan becomes due and payable; (f) the total amount payable to the Fund on the borrowing date; (g) the market value of securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular securities and (h) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the 1940 Act and the Fund's prospectus. Custodian shall deliver on the borrowing date specified in Written Instructions the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable I-16 as set forth in such Written Instructions. Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. Custodian shall deliver such securities as additional collateral as may be specified in Written Instructions to collateralize further any transaction described in this Paragraph 25(b). The Trust shall cause all securities released from collateral status to be returned directly to Custodian, and Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Trust fails to specify in Written Instructions the Fund, the name of the issuer, the title and number of shares or the principal amount of any particular securities to be delivered as collateral by Custodian, Custodian shall not be under any obligation to deliver any securities. 26A. Instructions. (a) It is understood and agreed that Custodian may, from time to time, provide software to the Trust for purposes of enabling a Fund to transmit Instructions to Custodian (the "Software"). Such Software has been designed to include password protection or other features to restrict the use of the Software to Authorized Persons; provided, however, that the Custodian makes no warranty or representations of any kind with respect to such protections or features, express or implied, including, but not limited to, any implied warranties of merchantability or fitness for a particular purpose. The Trust and the Custodian shall use commercially reasonable efforts to develop other mechanisms (i) to enable the Trust to restrict the use of the Software to Authorized Persons, (ii) to identify transmissions from a terminal other than an authorized terminal, and (iii) for the prompt and accurate transmission of Instructions by Authorized Persons to Custodian. It is further understood and agreed that Custodian may provide specialized hardware or other equipment to enable the Trust and the Funds to utilize the Software. With respect to any such Software, Custodian grants to the Trust and its service providers a personal, nontransferable and nonexclusive license to use the Software solely for the purpose of transmitting Instructions to, and receiving communications from, Custodian in connection with its account(s). The Trust and its service providers agree not to sell, reproduce, lease or otherwise provide, directly or indirectly, the Software or any portion thereof to any third party without the prior written consent of Custodian. At no time shall the Trust be obligated to use the Software to transmit Instructions to Custodian. (b) The Trust shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize the Software and transmit Instructions to Custodian; provided, however, that the parties acknowledge and agree that if any specialized equipment is necessary to enable the Trust to utilize the Software, Custodian shall, at its own expense, provide and maintain such equipment. (c) The Trust acknowledges that the Software, all databases made available to the Trust by utilizing the Software (other than databases relating solely to the I-17 assets of the Funds and transactions with respect thereto), and any proprietary data, processes, information and documentation (other than those which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of Custodian. The Trust shall keep the Information confidential by using the same care and discretion that the Trust uses with respect to its own confidential property and trade secrets and shall neither make nor permit any disclosure without the prior written consent of Custodian. Upon termination of this Agreement or the Software license granted hereunder for any reason, the Trust shall return to Custodian all copies of the Information which are in its possession or under its control or which the Trust distributed to third parties. (d) Custodian reserves the right to modify the Software from time to time upon reasonable prior notice and the Trust shall, if it desires in its sole discretion to continue to use the Software, install new releases of the Software as Custodian may direct. The Trust agrees not to modify or attempt to modify the Software without Custodian's prior written consent. The Trust acknowledges that any modifications to the Software, whether by the Trust or Custodian and whether with or without Custodian's consent, shall become the property of Custodian. (e) Where the method for transmitting Instructions by the Trust involves an automatic systems acknowledgment to the Trust by Custodian of its receipt of such Instructions, including any transmission of Instructions using the Software, then (i) if an acknowledgment is not actually received by the Trust, Custodian shall not be deemed to have received any such Instructions, and (ii) if an acknowledgment is actually received by the Trust, the Custodian shall be deemed to have received such Instructions and shall be responsible for any error, omission, interruption or delay in connection with the transmission of such Instructions; provided, however, that the Trust shall promptly review all acknowledgments actually received and notify the Custodian in the event of any apparent discrepancy. (f) (i) The Trust agrees that where it delivers to Custodian Instructions hereunder using the Software, it shall be the Trust's sole responsibility to ensure that only persons duly authorized by the Trust and the correct number of such persons transmit such Instructions to Custodian and the Trust will cause all such persons to treat applicable use and authorization codes, passwords and authentication keys with extreme care, and authorizes Custodian to act in accordance with and rely upon Instructions received by it pursuant hereto using the Software. (ii) The Trust hereby represents, acknowledges and agrees that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to Custodian and that there may be more secure methods of transmitting Instructions to Custodian than the method(s) selected by the Trust. (iii) With respect to all Oral Instructions and all Written Instructions other than Instructions delivered to Custodian using the Software provided by Custodian, Custodian shall exercise all commercially reasonable efforts to form a reasonable belief that each I-18 such instruction has been given by an Authorized Person and, where required, signed by an appropriate number of Authorized Person(s). (g) The Trust shall notify Custodian of any errors, omissions or interruptions in, or delay or unavailability of, its ability to send Instructions using the Software provided by Custodian as promptly as practicable, and in any event within 24 hours after the earliest of (i) discovery thereof, (ii) the business day on which discovery should have occurred through the exercise of reasonable care and (iii) in the case of any error, the date of actual receipt of the earliest notice which reflects such error, it being agreed that discovery and receipt of notice may only occur on a business day. Custodian shall, as promptly as practicable, and in any event within 24 hours after the earliest of (i) discovery thereof, (ii) the business day on which discovery should have occurred through the exercise of reasonable care and (iii) in the case of any error, the date of actual receipt of the earliest notice which reflects such error, it being agreed that discovery and receipt of notice may only occur on a business day, advise the Trust whenever Custodian learns or reasonably should have learned, of any errors, omissions or interruption in, or delay or unavailability of, the Trust's ability to send Instructions using the Software provided by Custodian. 26B. FX Transactions. (a) Whenever a Fund shall enter into a FX Transaction, the Fund shall promptly deliver to Custodian a Certificate or Oral Instructions specifying with respect to such FX Transaction: (i) the Series to which such FX Transaction is specifically allocated; (ii) the type and amount of Currency to be purchased by the Fund; (iii) the type and amount of Currency to be sold by the Fund; (iv) the date on which the Currency to be purchased is to be delivered; (v) the date on which the Currency to be sold is to be delivered; and (vi) the name of the person from whom or through whom such Currencies are to be purchased and sold. Unless otherwise instructed by a Certificate or Oral Instructions, Custodian shall deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to be sold on the date on which such delivery is to be made, as set forth in the Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the date as set forth in the Certificate. (b) Where the Currency to be sold is to be delivered on the same day as the Currency to be purchased, as specified in the Certificate or Oral Instructions, Custodian or a Foreign Sub-Custodian may arrange for such deliveries and receipts to be made in accordance with the customs prevailing from time to time among brokers or dealers in Currencies, and such receipt and delivery may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with such receipts and deliveries, which responsibility and liability shall continue until the Currency to be received by the Fund has been received in full. I-19 (c) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian, any office, branch or subsidiary of The Bank of New York, or any Foreign Sub-Custodian (as defined below) acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate with respect to foreign exchange transactions but Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all risks of investing in securities or holding Currency. Without limiting the foregoing, the Fund shall bear the risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign depositories, exchange controls, asset freezes or other laws, rules, regulations or orders shall prohibit or impose burdens or costs on the transfer to, by or for the account of the Fund of securities or any cash held outside the Fund's jurisdiction or denominated in Currency other than its home jurisdiction or the conversion of cash from one Currency into another Currency. Custodian shall not be obligated to substitute another Currency for a Currency (including a Currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected by such law, regulation, rule or procedure. Neither Custodian nor any Foreign Sub-Custodian shall be liable to the Fund for any loss resulting from any of the foregoing events. 27A. Duties of Custodian with Respect to Property of any Fund Held Outside of the United States by a Foreign Sub-Custodian. (a) Custodian is authorized and instructed to employ, as sub-custodian for each Fund's Foreign Assets, as defined in Rule 17f-5 under the 1940 Act, Eligible Foreign Custodians as defined in said Rule 17f-5 selected from time to time by Custodian as the Foreign Custody Manager appointed by the Trust's Board of Trustees ("Foreign Sub-Custodians") to carry out their respective responsibilities in accordance with the terms of the sub-custodian agreement between each such Foreign Sub-Custodian and Custodian (each such agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an Officer's Certificate, the Trust may designate any additional foreign sub-custodian with which Custodian has an agreement for such entity to act as Custodian's agent, as its sub-custodian and any such additional foreign sub-custodian shall be deemed a Foreign Sub-Custodian hereunder. Upon receipt of an Officer's Certificate, Custodian shall cease using any one or more Foreign Sub-Custodians for the Fund's assets. (b) Each Foreign Sub-Custodian Agreement shall be substantially in the form delivered to the Trust herewith and will not be amended in a way that materially or adversely affects the Trust without the Trust's prior written consent. (c) Custodian shall identify on its books as belonging to each Fund the Foreign Assets of such Fund held by each Foreign Sub-Custodian. At the election of the Trust, it shall be entitled to be subrogated to any claims by the Trust or any Fund against a Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense, liability or claim sustained or incurred by the Trust or any Fund if and to the extent that the Trust or I-20 such Fund has been made whole by Custodian for any such loss, damage, cost, expense, liability or claim. (d) Upon request of the Trust, Custodian will, consistent with the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts to arrange for the independent accountants of the Trust to be afforded access to the books and records of any Foreign Sub-Custodian insofar as such books and records relate to the performance of such Foreign Sub-Custodian under its agreement with Custodian on behalf of the Trust. (e) Custodian will supply to the Trust from time to time, as mutually agreed upon, statements in respect of the Foreign Assets of each Fund held by Foreign Sub-Custodians, including but not limited to, an identification of entities having possession of each Fund's Foreign Assets, and advises or notifications of any transfers of Foreign Assets to or from each custodial account maintained by a Foreign Sub-Custodian for Custodian on behalf of the Fund. (f) Custodian shall transmit promptly to the Trust all notices, reports or other written information received pertaining to the Funds' Foreign Assets, including without limitation, notices of corporate action, proxies and proxy solicitation materials. (g) Notwithstanding any provision of this Agreement to the contrary, settlement and payment for securities received for the account of the Trust or any Fund and delivery of securities maintained for the account of the Trust or any Fund may be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (h) With respect to any losses or damages arising out of or relating to any actions or omissions of any Foreign Sub-Custodian, the sole responsibility and liability of Custodian shall be to take all appropriate and reasonable action at the Trust's expense to recover such loss or damage from the Foreign Sub-Custodian. It is expressly understood and agreed that, unless Custodian has breached its standard of care set forth in Paragraph 28 hereof, Custodian's sole responsibility and liability shall be limited to amounts so recovered from the Foreign Sub-Custodian. 27B. Property of Any Fund Held Outside of the United States by a Foreign Depository. (a) Custodian is authorized and instructed to employ, and to authorize any Foreign Sub-Custodian to employ, an Eligible Securities Depository as defined in Rule 17f-7 under the 1940 Act (the "Rule") to hold foreign securities and other assets of each Fund. The use of any particular Eligible Securities Depository as defined in the I-21 Rule shall be authorized by an Officer's Certificate provided to Custodian specifying, or by delivery of Oral or Written Instructions contemplating or requiring the use of, such Eligible Securities Depository. Use of any such Eligible Securities Depository shall be subject to the rules and procedures of any such Eligible Securities Depository. (b) The Trust hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon any delivery of an Officer's Certificate specifying such an Eligible Securities Depository, or any giving of Oral or Written Instructions contemplating or requiring the use of a Foreign Depository, as the case may be, that the Trust or its investment advisor has determined that the custody arrangements of such Eligible Securities Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Eligible Securities Depository within the meaning of the Rule. (c) With respect to each Eligible Securities Depository as defined in the Rule, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for the safekeeping of the Fund's Foreign Assets would exercise in (i) providing the Fund and its investment adviser with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) monitoring such custody risks on a continuing basis and promptly notifying the Fund and its investment adviser of any material change in such risks. Custodian shall also provide to a Fund with respect to the status of an institution as an Eligible Securities Depository information gathered from Foreign Sub-Custodians or trade associations of which Custodian is a member and other publicly available information obtained by Custodian. The Fund acknowledges and agrees that such analysis and monitoring shall not include any evaluation of Country Risks. Custodian will endeavor to include in its analysis and monitoring, where appropriate among other things, a Foreign Depository's expertise and market reputation, the quality of its services, its financial strength, any insurance or indemnification arrangements, the extent and quality of regulation and independent examination of the depository, its standing in published ratings, its internal controls and other procedures for safeguarding investments, and any related legal protections. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, but not of any Foreign Depository to the extent covered by an analysis described in clause (i) of this Section, (b) such country's prevailing settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the order execution of securities transactions or affect the value of securities. (d) With respect to any losses or damages arising out of or relating to any actions or omissions of any Eligible Securities Depository as defined in the Rule, the sole responsibility and liability of Custodian shall be to take all appropriate and reasonable action at the Trust's expense to recover such loss or damage from the Eligible Securities Depository. It is expressly understood and agreed that, unless Custodian has I-22 breached its standard of care set forth in Paragraph 28 hereof, Custodian's sole responsibility and liability shall be limited to amounts so recovered from the Eligible Securities Depository. 28. Concerning Custodian. (a) (i) Custodian shall exercise reasonable care, prudence, and diligence and act in good faith and use all commercially reasonable efforts in the performance of its duties hereunder. Custodian shall be responsible to the Trust for its own failure or the failure of any sub-custodian that it shall appoint (other than a Foreign Sub-Custodian referred to in Paragraph 27 or a sub-custodian appointed by Custodian at the specific direction of the Trust) or that of its employees or agents, to perform its duties, obligations or responsibilities in accordance with this Agreement, but only to the extent that such failure results from acts or omissions that constitute willful misfeasance, bad faith or negligence on the part of Custodian, or on the part of its employees or agents, or reckless disregard of such duties, obligations and responsibilities. (ii) Without limiting the generality of the foregoing or any other provision of this Agreement, in no event shall Custodian be liable to the Fund or any third party nor, except as otherwise provided in this subparagraph for special, indirect or consequential damages or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. Custodian may, with respect to questions of law arising under any FCM Agreement, apply for and obtain the advice and opinion of counsel to the Trust at the expense of the Trust, or of its own counsel at its own expense, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. Custodian shall be liable to the Trust for any loss or damage resulting from the use of the Book-Entry System or any Securities Depository arising by reason of any negligence or willful misconduct on the part of Custodian or any of its employees or agents. (iii) Custodian's liability pursuant to the last sentence of subparagraph (a)(i) shall include, but not be limited to, reimbursing the Trust for court-ordered damage awards, fines, penalties, and judicially-approved settlements (and attorney's fees and disbursements relating thereto) arising out of or in connection with the conduct giving rise to such liability. (iv) If the Trust receives notice of the commencement of any action, suit, or proceeding (an "Action"), or notice that any Action may be commenced, for which Custodian may be liable to the Trust pursuant to this Paragraph 28, the Trust shall give notice to Custodian of the commencement of the Action or of the possibility that an Action will be commenced. Any omission to notify Custodian will not relieve Custodian from any liability which it may have under this Paragraph, except to the extent the failure to notify Custodian prejudices the rights of Custodian. Custodian will be entitled at its sole expense and liability, to exercise full control of the defense, I-23 compromise or settlement of any such Action, provided that Custodian: (1) notifies the Trust in writing of Custodian's intention to assume such defense; and (2) retains legal counsel reasonably satisfactory to the Trust to conduct the defense of such Action. If Custodian advises the Trust that it does not wish to exercise full control of any defense, compromise or settlement of any Action, Custodian shall be responsible for the fees and expenses of counsel selected by the Trust, in addition to any other amounts for which Custodian may be liable pursuant to this Paragraph 28. The other person will cooperate with the person assuming the defense, compromise or settlement of any Action in accordance with this Paragraph in any manner that such person reasonably may request. If Custodian so assumes the defense of any such Action, the Trust will have the right to employ a separate counsel and to participate in (but not control) the defense, compromise or settlement of the Action, but the fees and expenses of such counsel will be at the expense of the Trust unless: (a) Custodian has agreed to pay such fees and expenses, (b) any relief other than the payment of money damages is sought against the Trust, or (c) the Trust has been advised by its counsel that there may be one or more defenses available to it which are different from or additional to those available to Custodian and that a conflict of interest therefore exists, and in any such case that portion of the fees and expenses of such separate counsel that are reasonably related to matters for which Custodian is liable pursuant to this Paragraph will be paid by Custodian. The Trust will not settle or compromise any such Action for which Custodian is liable pursuant to this Paragraph without the prior written consent of Custodian, unless Custodian has failed, after reasonable notice, to undertake control of such Action in the manner provided in this Paragraph. Custodian will not settle or compromise any such Action in which any relief other than the payment of money damages is sought against the Trust without the consent of the Trust, such consent not to be unreasonably withheld. In the event that Custodian intends to settle or compromise any Action in which solely money damages are sought, Custodian shall give the Trust fifteen (15) business days prior written notice. (b) Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for: (i) the validity of the issue of any securities purchased, sold, or written by or for the Trust or any Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (ii) the legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (iii) the legality of the declaration or payment of any dividend by the Trust; (iv) the legality of any borrowing by the Trust using securities as collateral; I-24 (v) the legality of any loan of portfolio securities, or under any duty or obligation to see to it that any cash collateral delivered to it by a broker, dealer, or financial institution or held by it at any time as a result of such loan of portfolio securities is adequate collateral for or against any loss Custodian, the Trust or any Fund might sustain as a result of such loan. Custodian specifically, but not by way of limitation, shall not be under any duty or obligation periodically to check or notify the Trust or any Fund that the amount of such cash collateral held by Custodian for the Trust is sufficient collateral for the Trust, but such duty or obligation shall be the sole responsibility of the Trust. In addition, Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio securities are lent makes payment to it of any dividends or interest which are payable to or for the account of the Trust during the period of such loan or at the termination of such loan, provided, however, that Custodian shall promptly notify the Trust in the event that such dividends or interest are not paid and received when due; or (vi) the sufficiency or value of any amounts of money and/or securities held in any segregated account described in Paragraph 12(a) hereof in connection with transactions by the Funds, or whether such segregated account provides the compliance intended to be achieved. In addition, Custodian shall not be under any duty or obligation to see that any broker, dealer, FCM or Clearing Member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, FCM or Clearing Member, to see that any payment received by Custodian from any broker, dealer, FCM or Clearing Member is the amount the Trust is entitled to receive, or to notify the Trust or a Fund of Custodian's receipt or non-receipt of any such payment. (c) Custodian shall not be liable for, or considered to be sub-custodian or custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by Custodian on behalf of the Trust until Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest at the Book-Entry System or a Securities Depository. (d) Custodian shall not have any responsibility or be liable for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rate changes or similar matters relating to securities held in a Securities Depository, unless Custodian shall have actually received timely notice from such Securities Depository. In no event shall Custodian have any responsibility or liability for the failure of any Securities Depository to collect, or for the late collection or late crediting by a Securities Depository of any amount payable upon securities deposited in a Securities Depository which may mature or be redeemed, retired, called or otherwise become payable. Upon receipt of Written Instructions from the Trust of an overdue amount on securities held in a Securities Depository, Custodian shall make a claim against a Securities Depository on behalf of the Trust, except that Custodian shall not be under any obligation to appear in, I-25 prosecute or defend any action suit or proceeding in respect to any securities held by a Securities Depository which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required. (e) Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Trust from a transfer agent of the Trust nor to take any action to effect payment or distribution by the transfer agent of the Trust of any amount paid by Custodian to the transfer agent of the Trust in accordance with this Agreement. (f) Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until: (i) it shall be directed to take such action by Written Instructions, and (ii) it shall be assured to its reasonable satisfaction of reimbursement of its costs and expenses in connection with any such action. (g) Custodian may in addition to the employment of Foreign Sub-Custodians pursuant to Paragraphs 7 and 27, hereof appoint one or more banking institutions as Depository or Depositories, as a sub-custodian or as sub-custodians, or as a co-custodian or as co-custodians, including, but not limited to, banking institutions located in foreign countries, of securities and moneys at any time owned by the Funds, upon such terms and conditions as may be approved in an Officer's Certificate or contained in an agreement executed by Custodian and the Trust and the appointed institution. (h) Custodian shall not be under any duty or obligation: (i) to ascertain whether any securities at any time delivered to, or held by it or by any Foreign Sub-Custodian, for the account of the Trust and specifically allocated to a Fund are such as properly may be held by the Trust or such Fund under the provisions of its Prospectus, or (ii) to ascertain whether any transactions by the Fund, whether or not involving Custodian, are such transactions as may properly be engaged in by the Fund. (i) Custodian shall charge its compensation and any expenses with respect to the Funds of the Trust incurred by Custodian in the performance of its duties under this Agreement only against the money of the Fund or Funds of the Trust from which such compensation or expenses is actually due and payable, and under no circumstances shall any compensation or expenses due to Custodian be considered to be a joint, or joint and several, obligation of the Funds of the Trust. To the extent that Custodian is entitled to recover from the Trust any loss, damage, liability or expense (including counsel fees) under this Agreement, Custodian shall charge the amount due in respect of such loss, damage, liability or expense (including counsel fees) only against the money held by it for the Fund or Funds of the Trust that is/are identified by the Trust in an Officer's Certificate, unless and until the Trust instructs Custodian by an Officer's I-26 Certificate to charge against money held by it for the account of a Fund such Fund's pro rata share (based on such Fund's net asset value at the time of the charge in proportion to the aggregate net asset value of all Funds at that time) of the amount of such loss, damage, liability or expense (including counsel fees). (j) Custodian shall be entitled to rely upon any Officer's Certificate, Written Instructions, notice or other instrument in writing received by Custodian and reasonably believed by Custodian, to be an Officer's Certificate or Written Instructions. Custodian shall be entitled to rely upon any Oral Instructions actually received by Custodian. The Trust agrees to forward to Custodian Written Instructions confirming such Oral Instructions in such manner so that such Written Instructions are received by Custodian, whether by hand delivery, telecopier or other similar device, or otherwise, by the close of business of the same day that such Oral Instructions are received by Custodian. The Trust agrees that the fact that such confirming instructions are not received, or that contrary instructions are received, by Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Trust. The Trust agrees that Custodian shall not incur any liability to the Trust in acting upon Oral Instructions given to Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Authorized Person. (k) Custodian shall be entitled to rely upon any instrument, instruction or notice received by it and reasonably believed by it to be given in accordance with the terms and conditions of any FCM Agreement. Without limiting the generality of the foregoing, Custodian shall not be under any duty to inquire into, and Custodian shall not be liable for, the accuracy of any statements or representations contained in any such instrument or other notice including, without limitation, any specification of any amount to be paid to a broker, dealer, futures commission merchant or clearing member. (l) Custodian shall provide the Trust with any report obtained by Custodian on the system of internal accounting control of the Book-Entry System, any Securities Depository utilized hereunder the Depository or the Options Clearing Corporation, and with such reports on its own systems of internal accounting control as the Trust may reasonably request from time to time. (m) Subject to the foregoing provisions of this Agreement, including, without limitation, those contained in Paragraph 27 hereof, Custodian may deliver and receive securities, and receipts with respect to such securities, and arrange for payments to be made and received by Custodian in accordance with the customs prevailing from time to time among brokers or dealers in such securities. When Custodian is instructed to deliver securities against payment, delivery of such securities and receipt of payment therefor may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with Custodian's delivery of securities I-27 pursuant to proper instructions of the Fund, which responsibility and liability shall continue until final payment in full has been received by Custodian. (n) Custodian shall not have any duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. 29. Termination. Any of the parties hereto may terminate this Agreement by giving to the other parties a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall on that date deliver directly to the Trust or a successor custodian designated by the Trust all securities and moneys then owned by the Trust and held by Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled; provided, however, that transaction fees and expenses payable by the Trust in connection with a deconversion to a successor custodian shall be limited to Custodian's actual direct cost. 30. Notices. All notices and other communications (collectively referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or by confirm in telegram, cable, telex, or facsimile sending device. Notices shall be addressed: (a) if to Custodian, at Custodian's address, 90 Washington Street, 22nd Floor, New York, New York 10286, Attention: Frank Ajosa; (b) if to the Trust, at the address of the Trust's Secretary, 111 Center Street, Little Rock, Arkansas 72201, Attention: Richard H. Blank, Jr., Secretary; or (c) if to none of the foregoing, at such other address as shall have been notified to the sender of any such Notice or other communication. Notice shall be deemed to have been given when actually received by the other party. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a Notice hereunder shall be paid by the sender. 31. Further Actions. Each party agrees to perform such further acts and execute such further documents as it deems necessary to effectuate the purposes hereof. 32. Amendments. This Agreement or any part hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought. 33. Miscellaneous. (a) The Trust agrees that Custodian may be a counterparty in any purchase or sale of foreign currency by or for the Trust on a spot or forward basis, and on any option to buy or sell foreign currency. (b) This Agreement embodies the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings I-28 relating to the subject matter hereof. 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. This Agreement shall be deemed to be a contract made in New York and governed by New York law. 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. 34. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the Trust created and the Trustees, as trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is on file at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Interestholders, or representatives of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with any class of Shares of the Trust Property, and all persons dealing with any class of Shares of the Trust must look solely to the Trust Property belonging to such class for the enforcement of any claims against the Trust. 35. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. I-29 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first above written. NATIONS FUNDS TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees THE BANK OF NEW YORK By: /s/ Ira Rosner --------------- Ira Rosner Vice President I-30 SCHEDULE I The Custody Agreement between Nations Funds Trust and Sub-Custodian applies to the following Funds of the Trust: Nations Financial Services Fund Nations Classic Value Fund Nations High Yield Bond Fund Nations Kansas Municipal Income Fund Nations MidCap Index Fund Nations Marsico 21st Century Fund Nations Global Value Fund Nations Marsico International Opportunities Fund Nations Asset Allocation Fund Nations Government Securities Fund Nations Marsico Focused Equities Fund Nations Marsico Growth Fund Nations MidCap Value Fund Nations LargeCap Value Fund Nations New York Tax-Exempt Reserves Nations Research Fund Nations SmallCap Value Fund Nations Tax-Exempt Reserves Nations Value Fund Nations Strategic Growth Fund Nations Capital Growth Fund Nations MidCap Growth Fund Nations LargeCap Index Fund Nations Managed Index Fund Nations SmallCap Index Fund Nations Short-Intermediate Government Fund Nations Short-Term Income Fund Nations Strategic Income Fund Nations Bond Fund Nations Municipal Income Fund Nations Short-Term Municipal Income Fund Nations Intermediate Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund I-1 Nations Maryland Intermediate Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Virginia Intermediate Municipal Bond Fund Nations Small Company Fund Nations Government Reserves Nations Municipal Reserves Nations Cash Reserves Nations Treasury Reserves Nations Money Market Reserves Nations California Tax-Exempt Reserves Nations Convertible Securities Fund Nations California Municipal Bond Fund Nations Intermediate Bond Fund Nations International Equity Fund Nations International Value Fund Nations Emerging Markets Fund Nations California Intermediate Municipal Bond Fund Corporate Bond Portfolio Mortgage- and Asset-Backed Portfolio High Income Portfolio Nations SmallCap Core Fund Approved: May 23, 2001 Last Amended: August 28, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule I to be executed by their officers designated below as of the 28th day of August, 2002. NATIONS FUNDS TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President SCHEDULE II PUBLICATIONS I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do hereby designate the following publications: The Bond Buyer Depository Trust Company Services Financial Daily Card Service JJ Kenney Municipal Bond Service London Financial Times New York Times Standard & Poor's Called Bond Record Wall Street Journal I-4 SCHEDULE III Domestic Custodian Fee Schedule For Nations Funds Trust Money Market Funds Safekeeping/Income Collection/Reporting DTC-ID Affirmation All Systems Development and Usage Charges 1/2 of one basis point per annum on the aggregate net assets of all Nations' Money Market Funds. Security Transaction Charges $ 7 DTC/FRB/PTC $ 15 Physicals $ 40 Euro C/D's Other Charges $ 5 Bank official checks $ 2 Money transfers in/out of the Fund's custodian account not related to securities transactions. Earnings Credits on Balances/Interest on Overdrafts Earnings credits are provided to each Fund on 80% of the daily balance in the domestic custodian account computed at the 90-day T-bill rate on the day of the balance. Overdrafts, excluding bank errors, will cause a reduction of earnings credits daily, computed at 1% above the average Federal Funds rate on the day of the overdraft. Credits and debits will be accumulated daily and offset monthly against the Bank's domestic custodian fees. To the extent a net debit is accumulated, each Fund will be billed for the expense. To the extent a net earnings credit is generated, such excess earnings credit can be carried forward to the next succeeding month. However, no earnings credit will be carried forward after year-end. I-5 Domestic Custodian Fee Schedule For Nations Funds Trust Money Market Funds Out-of-Pocket Expenses None. Billing Cycle The above fees are billed monthly. Nations Funds Trust The Bank of New York - ------------------- -------------------- Approved by: /s/ A. Max Walker Approved by: /s/ Ira Rosner A. Max Walker Ira Rosner President and Chairman of Vice President the Board of Trustees Date: July 2, 2001 Date: July 2, 2001 I-6 Domestic Custodian Fee Schedule For Nations Funds Trust Non-Money Market Funds Safekeeping/Income Collection/Reporting/DTC-ID Affirmation All Systems Development and Usage Charges 3/4ths of one basis point per annum on the aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion. 1/2 of a basis point on the excess. Security Transaction Charges/Paydowns $ 5 Paydowns $ 7 DTC/FRB/PTC $ 15 Physicals, options, and futures $ 40 Euro C/D's Other Charges $ 5 Bank official checks $ 2 Money transfer in/out of the Fund's custodian account not related to securities transactions. Earnings Credits on Balances/Interest on Overdrafts Earnings credits are provided to each Fund on 80% of the daily balance in the domestic custodian account computed at the 90-day T-bill rate on the day of the balance. Overdrafts, excluding bank errors, will cause a reduction of earnings credits daily, computed at 1% above the average Federal Funds rate on the day of the overdraft. Credits and debits will be accumulated daily and offset monthly against the Bank's domestic custodian fees. To the extent a net debit is accumulated, each Fund will be billed for the expense. To the extent a net earnings credit is generated, such excess earnings credit can be carried forward to the next succeeding month. However, no earnings credit will be carried forward after year-end. I-7 Domestic Custodian Fee Schedule For Nations Funds Trust Non-Money Market Funds Out-of-Pocket Expenses None. Billing Cycle The above fees are billed monthly. Nations Funds Trust The Bank of New York - ------------------- -------------------- Approved by: /s/ A. Max Walker Approved by: /s/ Ira Rosner A. Max Walker -------------- President and Chairman of Ira Rosner the Board of Trustees Vice President Date: July 2, 2001 Date: July 2, 2001 Customer Contact Portfolio trades are coordinated by a dedicated administrative group reacting to instructions from your authorized persons. The group consists of a senior officer in charge, administrators assigned based on activity and complexity and ample backup on hand to ensure responsiveness to your needs. Safekeeping of Securities We are a direct member of all major depositor systems, i.e., Depository Trust Company, Federal Reserve Book Entry, Participants Trust Company, etc. Agreements are in place with sub-custodians for book-entry municipal bond programs. Arrangements have been completed for numerous multi-party repurchase transactions. Vault Operations are constantly monitored via closed-circuit security systems. I-8 Options/Futures Issue escrow or depository receipts. Collect premiums and effect closing purchase transactions for covered call options. Issue guarantee letters for put options. Agreements are in place with numerous Futures Commission Merchants (FCMs), to settle transactions and service maintenance margin requirements. Segregated accounts are maintained to comply with collateral agreements with contra-brokers. Income Collection/Paydowns Dividends and interest due to the account are pre-posted on the payable date. Proceeds from maturing securities are credited on the redemption date. Paydowns on GNMA, FNMA, FHLMC, and CMOs are posted on payable date and credited in Federal Funds on the business day after payable date when the factor is available (95% of issues held). Securities requiring registration are held in our nominee name to facilitate both sales and income collection. Reports The following reports are provided to allow your staff to monitor portfolio cash and security transactions: Daily Custodian Account Journal includes portfolio and cash transactions of the previous business day. Cash Balance Projection Report includes all trades reported to us that have not settled through the previous business day. Pending dividends, interest, maturities and called bonds are also listed on this report. Daily report of affirmed/unaffirmed trades. List of Assets reflects securities and cash held in the custodian account available daily, weekly, monthly, etc. I-9 Monthly Cash Statement - summary of all Daily Custodian Account Journal activity for the previous month. Workstation Our workstation will afford you the ability to review, edit, enter, and transmit all trade settlement instructions to the Bank for processing. Easily accessed via a PC, using a local telephone number, it increases your flexibility to input and retrieve information while significantly reducing your communication costs. The system is accessible 24 hours a day, 7 days a week. Our Cash Management Report is another of our on-line systems capabilities providing real-time settlement data regarding the current day's activity in your account. The activity would include pending and settled trades, income, paydowns and maturity payments as well as cash balances. This information puts effective cash management in your hands. Another of our dynamic on-line systems is called Q-TRAK. This on-line module of our system can be used to notify the bank of any inquiries regarding securities related problems. You can use Q-TRAK to route your inquiries directly to your Custody Administrative Team. Q-TRAK allows for prioritization of each inquiry and response, and permits you to monitor progress on each item as it is being researched. Many of the Bank's clients have found Q-TRAK to be an excellent tool in achieving timely resolutions to their questions. General Servicing Prompt notification of corporate actions. Corporate literature directly forwarded upon receipt. Proxies for securities held in our nominee are executed and forwarded to the Fund for voting. Payment of your authorized corporate expenses. I-10 SCHEDULE IV OVERDRAFT RATE I-11 EX-99.23(H)(1) 10 dex9923h1.txt CO-ADMINISTRATION AGREEMENT Exhibit 99.23(h)(1) CO-ADMINISTRATION AGREEMENT NATIONS FUNDS TRUST This CO-ADMINISTRATION AGREEMENT (the "Agreement") is made as of February 14, 2000 by and among STEPHENS INC. ("Stephens"), BANC OF AMERICA ADVISORS, INC. ("BAAI") and NATIONS FUNDS TRUST (the "Trust"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trust desires to retain Stephens and BAAI to render certain administrative services for the investment portfolios of the Trust listed on Schedule I (individually, a "Fund" and collectively, the "Funds"), and Stephens and BAAI are willing to render such services. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed among the parties hereto as follows: 1. Appointment. (a) The Trust hereby appoints Stephens to act as Co-Administrator of the Funds and Stephens hereby accepts such appointment and agrees to render such services and duties set forth in Paragraph 3, for the compensation and on the terms herein provided. Absent written notification to the contrary by the Trust, BAAI or Stephens, each new investment portfolio established in the future by the Trust shall automatically become a "Fund" for all purposes hereunder as if listed on Schedule I. (b) The Trust also hereby appoints BAAI to act as Co-Administrator of the Funds, and BAAI hereby accepts such appointment and agrees to render such services and duties set forth in Paragraph 4, for the compensation and on the terms herein provided. Absent written notification to the contrary by either the Trust or BAAI, each new investment portfolio established in the future by the Trust shall automatically become a "Fund" for all purposes hereunder as if listed on Schedule I. 2. Delivery of Documents. The Trust has furnished Stephens and BAAI with copies properly certified or authenticated of each of the following: (a) The Trust's registration statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended, and under the 1940 Act (File Nos. 333-89661 and 811-09645), as filed with the Securities and Exchange Commission (the "SEC") relating to the Funds' shares of beneficial interest (the "Shares"); (b) The Funds' most recent prospectus(es); and (c) The Funds' most recent statement(s) of additional information. 1 The Trust will furnish Stephens and BAAI from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing. Furthermore, the Trust will provide Stephens and BAAI with any other documents that Stephens and BAAI may reasonably request and will notify Stephens and BAAI as soon as possible of any matter materially affecting either Stephens' or BAAI's performance of its services under this Agreement. 3. Duties as Co-Administrator. Subject to the supervision and direction of the Board of Trustees of the Trust, Stephens, as Co-Administrator, will assist in supervising various aspects of the Trust's administrative operations and undertakes to perform the following specific services from and after the effective date of this Agreement: (a) Maintaining office facilities for the Trust (which may be in the offices of Stephens or a corporate affiliate); (b) Furnishing clerical services, internal executive and administrative services and stationery and office supplies in connection with the foregoing; (c) Assist in furnishing statistical and research data and data processing services in connection with the foregoing; (d) Furnishing corporate secretarial services, including assisting in the coordination of the preparation and distribution of materials for Board of Trustees meetings; (e) Providing the services of certain persons who may be appointed as officers of the Trust by the Trust's Board of Trustees; (f) Assist in coordinating the provision of legal advice and counsel to the Trust with respect to regulatory matters, including monitoring regulatory and legislative developments which may affect the Trust and assisting in the strategic response to such developments, counseling and assisting the Trust in routine regulatory examinations or investigations of the Trust, and working closely with outside counsel to the Trust in connection with any litigation in which the Trust is involved; (g) Assist in coordinating the preparation of reports to the Trust's shareholders of record and the SEC including, but not necessarily limited to, annual reports and semi-annual reports to shareholders and on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; (h) Coordinating with the Trust regarding the jurisdictions in which the Shares shall be registered or qualified for sale and, in connection therewith, being responsible for the registration or qualification and the maintenance of such registration or qualification of Shares for sale under the securities laws of any state. Payment of share registration fees and any fees for qualifying or continuing the qualification of the Trust or any Fund as a dealer or broker shall be made or reimbursed by the Trust or that Fund, respectively; 2 (i) Assisting in the preparation and filing on a timely basis of various reports, registration statements and post-effective amendments thereto, and other documents required by federal, state and other applicable laws and regulations, other than those filed or required to be filed by BAAI or the Funds' sub-advisers, transfer agent, sub-transfer agent or custodian; (j) Performing certain compliance procedures for the Trust which will include, among other matters, monitoring compliance with personal trading guidelines by the Trust's Board of Trustees; and (k) Generally assisting in all aspects of the Trust's operations. In performing all services under this Agreement, Stephens shall (i) act in conformity with: the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement, as such Registration Statement may be amended from time to time; (ii) consult and coordinate with the Trust, as necessary and appropriate; and (iii) advise and report to the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In performing its services under this Agreement, Stephens shall cooperate and coordinate with BAAI as necessary and appropriate and shall provide such information as is reasonably necessary or appropriate for BAAI to perform its responsibilities to the Trust. 4. Duties as Co-Administrator. Subject to the supervision and direction of the Board of Trustees of the Trust, BAAI, as Co-Administrator, will assist in supervising various aspects of the Trust's administrative operations and undertakes to perform the following specific services, from and after the effective date of this Agreement: (a) Providing accounting and bookkeeping services (including the maintenance for the periods prescribed by Rule 31a-2 under the 1940 Act of such accounts, books and records of the Trust as may be required by Section 31(a) of the 1940 Act and the rules thereunder). BAAI further agrees that all such records which it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's request; (b) Valuing each Fund's assets and calculating the net asset value and the net income of the shares of each Fund in accordance with the Trust's current prospectus(es), applicable pricing procedures and votes of the Trust's Board of Trustees, provided, that in performing such services, BAAI shall obtain security market quotes from independent pricing services, or if such quotes are unavailable, obtain such prices from the Funds' sub-advisers; (c) Accumulating information for reports to the Trust's shareholders of record and the SEC including, but not necessarily limited to, annual reports and semi-annual reports to shareholders and on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; 3 (d) Preparing and filing on a timely basis the Trust's tax returns and other tax filings; (e) Monitoring the development and implementation of certain compliance procedures for the Trust including, but not limited to, monitoring (i) each Fund's status as a regulated investment company under Sub-Chapter M of the Internal Revenue Code of 1986, as amended, including performing, on a monthly basis and based upon information provided by the Fund's sub-advisers, the 90% gross income and asset diversification tests derived from such Sub-Chapter; and (ii) compliance by each Fund with its investment objective, policies and restrictions, and applicable laws and regulations; (f) Preparing and furnishing to the Trust monthly broker security transaction summaries and monthly security transaction listings and (at the Trust's request) performance information (including yield and total return information) calculated in accordance with applicable U.S. securities laws and reporting to external databases such information as may reasonably be requested; (g) Assisting the Trust and its agents in their accumulation and preparation of materials for the Board of Trustees' meetings and for regulatory examinations and inspections of the Trust, to the extent such materials relate to the services being performed for the Trust by BAAI; and (h) Coordinate the provisions of services to the Trust by other service providers to the Trust, including the transfer agent, sub-transfer agent and custodian. In performing all services under this Agreement, BAAI shall (i) act in conformity with the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement, as such Registration Statement may be amended from time to time; (ii) consult and coordinate with the Trust, as necessary and appropriate; and (iii) advise and report to the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In connection with its duties under this Paragraph 4, it is understood and agreed that BAAI may, at its own expense, enter into sub-administration agreements with other service providers and the Fund(s), provided that each such service provider agrees with BAAI and the Fund(s) to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. In addition, upon notice to the Board of Trustees of the Trust, the parties agree that BAAI may from time to time assume some or all of Stephens' duties set forth in Paragraph 3 above. In performing its responsibilities under this Agreement, BAAI shall cooperate and coordinate with Stephens as necessary and appropriate and shall provide such information within its possession or control as is reasonably necessary or appropriate to Stephens to enable it to perform its responsibilities to the Trust. 4 5. Compensation. (a) Stephens shall bear all expenses in connection with the performance of its services under this Agreement, except those enumerated in Paragraph 5(a)(2) below. (1) Stephens will from time to time employ or associate with such person or persons as Stephens may believe to be particularly suited to assist it in performing services under this Agreement. Such person or persons may be officers and employees of both Stephens and the Trust. The compensation of such person or persons shall be paid by Stephens and no obligation shall be incurred on behalf of the Trust or BAAI in such respect. (2) Stephens shall not be required to pay any of the following expenses incurred by the Trust: investment advisory expenses; costs of printing and mailing stock certificates, prospectuses, reports and notices; interest on borrowed money; brokerage fees and commissions; taxes and fees payable to federal, state and other governmental agencies; fees of Trustees of the Trust who are not affiliated with Stephens; outside auditing expenses; outside legal expenses; fees of any other service provider to the Trust; or other expenses not specified in this Section 5(a) which may be properly payable by the Trust and which are approved by the Trust's President or Treasurer. (3) The Trust will compensate Stephens for its services rendered pursuant to this Agreement in accordance with Schedule A. In addition, the Trust shall reimburse Stephens for certain reasonable out-of-pocket distributions made in connection with fulfilling its obligations under the Agreement. The items eligible for reimbursement are set forth on Schedule A. (b) BAAI shall bear all expenses in connection with the performance of its services under this Agreement, except those enumerated in 5(b)(2) below. (1) BAAI will from time to time employ or associate with such person or persons as BAAI may believe to be particularly suited to assist it in performing services under this Agreement. Such person or persons may be officers and employees of both BAAI and the Trust. The compensation of such person or persons shall be paid by BAAI and no obligation shall be incurred on behalf of the Trust or Stephens in such respect. (2) BAAI shall not be required to pay any of the following expenses incurred by the Trust: investment advisory expenses; costs of printing and mailing stock certificates, prospectuses, reports and notices; interest on borrowed money; brokerage fees and commissions; taxes and fees payable to federal, state and other governmental agencies; fees of Trustees of the Trust who are not affiliated with BAAI; outside auditing expenses; outside legal expenses; fees of independent pricing services utilized by BAAI to value each Fund's assets; fees of any other service provider to the Trust (other than a sub-administrator engaged pursuant to Paragraph 4); or other expenses not specified in this Section 5(b) which may be properly payable by the Trust and which are approved by the Trust's President or Treasurer. 5 (3) The Trust will compensate BAAI for its services rendered pursuant to this Agreement in accordance with Schedule A. In addition, the Trust shall reimburse BAAI for certain reasonable out-of pocket distributions made in connection with fulfilling its obligations under the Agreement. The items eligible for reimbursement are set forth on Schedule A. 6. Limitation of Liability; Indemnification. (a) Stephens shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of its obligations and duties under this Agreement, except a loss resulting from Stephens' willful misfeasance, bad faith or negligence in the performance of such obligations and duties, or by reason of its reckless disregard thereof. (b) BAAI shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of its obligations and duties under this Agreement, except a loss resulting from BAAI's willful misfeasance, bad faith or negligence in the performance of such obligations and duties, or by reason of its reckless disregard thereof. (c) The Trust, on behalf of each Fund, will indemnify Stephens and/or BAAI against and hold each harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit relating to the particular Fund and not resulting from the willful misfeasance, bad faith or negligence of Stephens and/or BAAI in the performance of such obligations and duties or by reason of their reckless disregard thereof. Stephens and/or BAAI will not confess any claim or settle or make any compromise in any instance in which the Trust will be asked to provide indemnification, except with the Trust's prior written consent. Any amounts payable by the Trust under this Section 6(c) shall be satisfied only against the assets of the Fund involved in the claim, demand, action or suit and not against the assets of any other investment portfolio of the Trust. 7. Effective Date; Termination of Agreement. (a) This Agreement shall become effective on the date of its execution. This Agreement shall remain in full force and effect with respect to such Fund(s) unless terminated pursuant to the provisions of Section 7(b). (b) This Agreement may be terminated at any time without payment of any penalty, upon 60 days' written notice, by vote of the Board of Trustees of the Trust, by Stephens or by BAAI. Stephens and BAAI will each cooperate with and assist the Trust, its agents and any successor administrator or administrators in the substitution/conversion process. (c) Sections 6 and 9 shall survive this Agreement's termination. 6 8. Amendments. No provision of this Agreement may be changed, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought. 9. Confidentiality. All books, records, information and data pertaining to the business of the Trust, its prior, present or potential shareholders and BAAI's customers that are exchanged or received pursuant to the performance of Stephens' and/or BAAI's duties under this Agreement shall remain confidential and shall not be disclosed to any other person, except as specifically authorized by the Trust or as may be required by law, and shall not be used for any purpose other than performance of Stephens' and BAAI's responsibilities and duties hereunder. 10. Service to Other Companies or Accounts. The Trust acknowledges that both Stephens and BAAI now act, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts, and as investment adviser, investment sub-adviser and/or administrator to other investment companies or series of investment companies, and the Trust has no objection to either Stephens or BAAI so acting. The Trust further acknowledges that the persons employed by both Stephens and BAAI to assist in the performance of their duties under this Agreement may not devote their full time to such service and nothing contained in this Agreement shall be deemed to limit or restrict the right of Stephens or BAAI or any affiliate of either to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. 11. Miscellaneous. (a) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Trust, Stephens or BAAI shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Trust: Nations Funds Trust 111 Center Street, Suite 3000 Little Rock, Arkansas 72201 Attention: Secretary To Stephens: Stephens Inc. 111 Center Street, Suite 3000 Little Rock, Arkansas 72201 Attention: Richard H. Blank, Jr. 7 To BAAI: Banc of America Advisors, Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 Attention: Edward D. Bedard (b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other parties. (c) This Agreement shall be construed in accordance with the laws of the State of Delaware. (d) This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. (e) The captions of 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. (f) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters described herein. 8 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date first written above. STEPHENS INC. By: /s/ Richard H. Blank, Jr. ----------------------------- Richard H. Blank, Jr. Senior Vice President BANC OF AMERICA ADVISORS, INC. By: /s/ Edward D. Bedard ----------------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST By: /s/ Carolyn Wyse ----------------------------- Carolyn Wyse Assistant Secretary 9 SCHEDULE I Nations Funds Trust: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund I-1 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund 58. Nations California Intermediate Municipal Bond Fund 59. Corporate Bond Portfolio 60. Mortgage- and Asset-Backed Portfolio 61. High Income Portfolio 62. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule A to be executed by their officers designated below as of the 28th day of August, 2002. STEPHENS INC. By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Senior Vice President BANC OF AMERICA ADVISORS, LLC (Formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Carolyn Wyse ---------------- Carolyn Wyse Assistant Secretary I-3 SCHEDULE A For services rendered pursuant to this Agreement, the Trust will pay Stephens and BAAI, in the aggregate, an administration fee, computed daily and payable monthly, based on annual rate of each Fund's daily net assets as follows: 1. Money Market Funds: 0.10% 2. Fixed Income Funds (except 0.22% Nations High Yield Bond Fund): 3. Nations High Yield Bond Fund: 0.18% 4. Nations Marsico International 0.12% Opportunities Fund: 5. Domestic Equity Funds (except 0.23% Nations Marsico 21st Century Fund, Nations Marsico Focused Equities Fund and Nations Marsico Growth Fund): 6. Nations Marsico 21st Century 0.13% Fund, Nations Marsico Focused Equities Fund and Nations Marsico Growth Fund: 7. Nations LifeGoal Growth As mutually agreed upon by the Portfolio, Nations LifeGoal Trust, Stephens and BAAI from time Balanced Growth Portfolio, to time. Pursuant to separate Nations LifeGoal Income and agreements for these Funds, BAAI Growth Portfolio, Corporate has agreed to absorb all fees and Bond Portfolio, Mortgage- and expenses incurred under this Asset-Backed Portfolio and Agreement. High Income Portfolio: It is understood and agreed among the parties that the aggregate administration fee payable hereunder shall be divided by and between Stephens and BAAI, as they may agree from time to time. In addition to the asset-based fee set forth above, the Trust shall reimburse Stephens, BAAI and any sub-administrator engaged pursuant to Paragraph 4 for certain reasonable out-of-pocket expenses incurred by them in connection with the performance of their respective duties hereunder. Reimbursable out-of-pocket expenses shall include the following: reasonable costs associated with postage (including overnight services), telephone, telecommunications (including facsimiles), duplicating, pricing services, and forms and supplies and such other out-of-pocket expenses as the parties may agree to from time to time. A-1 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule A to be executed by their officers designated below as of the 28th day of August, 2002. STEPHENS INC. By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Senior Vice President BANC OF AMERICA ADVISORS, LLC (Formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Carolyn Wyse ---------------- Carolyn Wyse Assistant Secretary EX-99.23(H)(2) 11 dex9923h2.txt SUB-ADMINISTRATION AGREEMENT Exhibit 99.23(h)(2) SUB-ADMINISTRATION AGREEMENT NATIONS FUNDS TRUST This SUB-ADMINISTRATION AGREEMENT (the "Agreement") is made as of February 14, 2000 by and among THE BANK OF NEW YORK ("BNY"), BANC OF AMERICA ADVISORS, INC. ("BAAI") and NATIONS FUNDS TRUST (the "Trust"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, BAAI serves as the Co-Administrator for the investment portfolios of the Trust pursuant to a separate Co-Administration Agreement; and WHEREAS, BAAI desires to retain BNY to render certain sub-administrative services to the Trust and to BAAI, as Co-Administrator of the Trust, and BNY is willing to render such services. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed among the parties hereto as follows: 1. Appointment and Duties as Sub-Administrator. (a) BAAI hereby appoints BNY to act as Sub-Administrator of the Trust and to render sub-administrative services for each portfolio of the Trust listed on Schedule I (individually, a "Fund" and collectively, the "Funds") and BNY hereby accepts such appointment and agrees to render the services and duties set forth in Schedule II as it may be amended from time to time, for the compensation and on the terms herein provided. Each new investment portfolio established in the future by the Trust or BAAI will become a "Fund" for all purposes hereunder when BNY receives a revised Schedule I from BAAI or the Trust that includes such new portfolio. (b) Subject to the other provisions of this Section 1, in performing all services under this Agreement, BNY shall (i) act in conformity with the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, including but not limited to Rules 31a-1 to 31a-3, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement (defined below) as such Registration Statement may be amended from time to time; (ii) consult and coordinate with BAAI and the Trust, as necessary and appropriate; and (iii) advise and report to BAAI and the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In performing all services under this Agreement BNY shall meet the minimum quality of service standards set forth on Schedule III. (c) The Trust has furnished BNY and BAAI with copies properly certified or authenticated of each of the following: (i) the Trust's Declaration of Trust or other organizational document and all amendments thereto (the "Declaration"); (ii) votes of the Trust's 1 Board of Trustees or other governing body (the "Board") authorizing the execution, delivery and performance of this Agreement by the Trust; (iii) the Trust's Registration Statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended, and under the 1940 Act (File Nos. 333-89661 and 881-09645), as filed with the Securities and Exchange Commission (the "SEC") relating to the Funds' shares of beneficial interest (the "Shares"); (iv) the Funds' current prospectus(es); (v) the Funds' current statement(s) of additional information; and (v) the pricing procedures applicable to the calculation of the Funds' net asset values as approved by the Trust's Board (the "Pricing Procedures"). It is solely the Trust's responsibility to furnish BNY from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, and BNY will not be held to have knowledge of any such amendments or supplements until the same are actually received by BNY. Furthermore, the Trust will provide BNY with any other documents that BNY and BAAI may reasonably request and will notify BNY and BAAI as soon as possible of any matter materially affecting either BNY's or BAAI's performance of its services under this Agreement. (d) Subject to the direction and approval of the Trust's Board and appropriate officers and the provisions of this Agreement, BNY shall provide to each Fund the administrative services set forth on Schedule II attached hereto. In performing such services hereunder, BNY shall provide, at its expense, office space, facilities, equipment and personnel. BNY shall not provide any services relating to the management, investment advisory or sub-advisory functions of any Fund, distribution of shares of any Fund, maintenance of any Fund's financial records (except as otherwise agreed by the parties) or any services normally performed by the Funds' counsel or independent accountants. Upon receipt of the Trust's prior written consent, BNY may delegate any of its duties and obligations hereunder to any delegee or agent whenever and on such terms and conditions as it deems necessary or appropriate. Unless expressly agreed in writing, BNY shall not be relieved of liability or responsibility for the performance of any duties or obligations delegated to a delegee or agent, provided that BNY shall have no liability for duties or obligations that are delegated to a delegee or agent at the instruction of the Trust or BAAI. The Trust and BAAI shall cause their respective officers, and shall use reasonable efforts to cause the Trust's or BAAI's legal counsel, independent accountants, and transfer agent to cooperate with BNY and to provide BNY, upon BNY's reasonable written request, such information, documents and advice relating to such Fund as is within the possession or knowledge of such persons, in order to enable BNY to perform its duties hereunder. Such cooperation or provision of information, documents or advice shall be at no cost to BNY, provided BNY's request is reasonable and BAAI shall have been notified of the request. In connection with its duties hereunder, BNY shall be entitled to reasonably rely upon any documents relating to a Fund provided to BNY by any of the aforementioned persons. BNY may apply to the Trust or BAAI for written instructions with respect to any matter arising in connection with BNY's performance hereunder. If, after a reasonable period of time, BNY receives no response to any such application, BNY may then notify the Trust or BAAI of reasonable action that BNY shall take if written instructions are not received within a stated period of time after such notice, and then BNY shall not be liable for taking such reasonable action as if written instructions had been provided. BNY is entitled to reasonably rely and act in accordance with written instructions believed to have been given by authorized persons and shall incur no costs for such reasonable reliance. BNY shall have no duties or responsibilities 2 whatsoever except such duties and responsibilities as are specifically set forth in this Agreement and Schedule II hereto, and no covenant or obligation shall be implied against BNY in connection with this Agreement. (e) The Trust and BAAI, for itself and not for the others, hereby represents and warrants to BNY, which representations and warranties shall be deemed to be continuing, that: (i) it is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; (ii) this Agreement has been duly authorized, executed and delivered by it in accordance with all requisite action and constitutes a valid and legally binding obligation, enforceable in accordance with its terms; (iii) it is conducting its business substantially in compliance with all applicable laws and regulations, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; (iv) there is no statute, regulation, rule, order or judgment binding on it and no provision of its Declaration, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property which would prohibit its execution or performance of this Agreement; and (v) the Trust and BAAI will use reasonable efforts to promptly notify BNY of any errors or omissions contained in any reports, calculations, valuations and other items of information, provided that any failure by the Trust or BAAI to detect any such errors or omissions shall not relieve BNY of any resulting liability therefrom. To the extent that BAAI has actual knowledge of any such error or omission and fails to use reasonable efforts to promptly notify BNY, BNY shall be relieved of any liability that BNY may have mitigated had BAAI provided notice of such error or omission to BNY. (f) BNY hereby represents and warrants to the Trust and BAAI, which representations and warranties shall be deemed to be continuing, that: (i) it is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; (ii) this Agreement has been duly authorized, executed and delivered by it in accordance with all requisite action and constitutes a valid and legally binding obligation, enforceable in accordance with its terms; and (iii) it is conducting its business substantially in compliance with all applicable laws and regulations, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; there is no statute, regulation, rule, order or judgment binding on it and no provision of its Charter, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property which would prohibit its execution or performance of this Agreement. 2. Compensation. For the services to be rendered, the facilities to be furnished and the compensation and other expenses to be borne by BNY, as provided for in this Agreement, BNY shall be entitled to receive a monthly fee from BAAI and reimbursement for out-of-pocket expenses as set forth in Schedule IV to this Agreement. It is understood that BAAI shall be responsible for BNY's monthly fee for its services hereunder, and BNY agrees that it shall have no claim against the Trust or the Funds with respect to compensation under this Agreement. 3. Recordkeeping. BNY shall, as agent for the Trust, and subject to the direction and approval of the Trust's Board and the provisions of this Agreement, maintain and keep current 3 the books, accounts and other documents, if any, pursuant to the services and duties provided by BNY as set forth in Schedule II of this Agreement, and preserve any such books, accounts and other documents in accordance with the applicable provisions of Rule 31a-2 of the 1940 Act. Such books, accounts and other documents shall be made available upon reasonable request for inspection by officers, employees and auditors of the Trust and BAAI during BNY's normal business hours. All records maintained and preserved by BNY pursuant to this Agreement which the Trust is required to maintain and preserve in accordance with Rule 31a-2 of the 1940 Act shall be and remain the property of the Trust and shall be surrendered to the Trust promptly upon request in the form in which such records have been maintained and preserved. Upon reasonable request of the Trust, BNY shall provide in data files or hard copy, whichever the Trust shall reasonably elect, any records included in any such delivery which are maintained by BNY on a computer disc, or are similarly maintained, and the Trust shall reimburse BNY for its expenses of providing such hard copy. 4. Standard of Care; Indemnification. (a) BNY shall at all times act in good faith and agrees to use its best efforts to fulfill its obligations under this Agreement, but assumes no responsibility for loss or damage to the Trust unless such loss or damage is caused by BNY's own negligence, bad faith or willful misconduct or that of its directors, officers or employees. BNY shall be responsible hereunder for all direct damages resulting from its own negligence, bad faith or willful misconduct, provided however that it shall not be responsible for lost profits or lost business arising under or in connection with this Agreement. It is understood and agreed that for purposes of this Section 4(a), "direct damages" shall include, but shall not be limited to, all legal costs, penalties, reimbursement for excess distribution and redemption payments, repurchasing costs for servicing agents and reimbursement to the Funds for net asset value breaks (as calculated under the Pricing Procedures). (b) The Trust, on behalf of each Fund, will indemnify BNY against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses of a defense against any claim, demand, action or suit), relating to the particular Fund and arising from any one or more of the following: (i) errors in records or instructions, explanations, information, specifications or documentation of any kind, as the case may be, supplied to BNY by any person described in Section 1 hereof or by any third party described in Section 5; (ii) action or inaction taken or omitted to be taken by BNY pursuant to written or oral instructions described in this Agreement (or otherwise without bad faith, negligence or willful misconduct); (iii) any action taken or omitted to be taken by BNY in good faith in accordance with the advice or opinion of counsel for a Fund, the Trust, BAAI (obtained in accordance with the procedures set forth in this Agreement) or its own counsel; (iv) any improper use by the Fund, the Trust, BAAI or their respective agents, of any valuations or computations supplied by BNY pursuant to this Agreement; (v) the method of valuation of the securities and the method of computing a Fund's net asset value or any other amount computed by BNY hereunder, provided BNY has followed the Pricing Procedures; and (vi) any valuation of securities, net asset value or other amount provided by a Fund or BAAI. BNY will not confess any claim or settle or make any compromise in any instance in which the Trust will be asked to provide indemnification, except with the Trust's prior written consent. Any amounts payable by 4 the Trust under this Section 4(b) shall be satisfied only against the assets of the Fund involved in the claim, demand, action or suit and not against the assets of any other investment portfolio of the Trust. 5. Fund Accounting Services. (a) BNY, in performing the services required of it under the terms of this Agreement, shall be entitled to rely fully on the accuracy and validity of any and all instructions, explanations, information, specifications and documentation furnished to it by a Fund and shall have no duty or obligation to review the accuracy, validity or propriety of such instructions, explanations, information, specifications or documentation, including, without limitation, evaluations of securities; the amounts or formula for calculating the amounts and times of accrual of Fund's liabilities and expenses; the amounts receivable and the amounts payable on the sale or purchase of securities; and amounts receivable or amounts payable for the sale or redemption of Fund shares effected by or on behalf of the Fund. In the event BNY's computations hereunder rely, in whole or in part, upon information, including, without limitation, bid, offer or market values of securities or other assets, or accruals of interest or earnings thereon, from a pricing or similar service utilized, or subscribed to, by BNY which BNY in its judgment deems reliable, or any other third party pricing source designated by the Trust, BNY shall not be responsible for, under any duty to inquire into, or deemed to make any assurances with respect to, the accuracy or completeness of such information. BNY shall not be required to inquire into any valuation of securities or other assets by the Fund or any third party described in this Section, even though BNY in performing services similar to the services provided pursuant to this Agreement for others may receive different valuations of the same or different securities of the same issuers. (b) Subject to the provisions of this Agreement and the direction and approval of the Trust's Board, BNY shall perform the computations described in Schedule II at such times and dates and in the manner specified or described in the then-current prospectus(es) of a Fund. To the extent valuation of securities or a computation specified or described in a Fund's Pricing Procedures or then-current effective prospectus(es) is at any time inconsistent with any applicable laws or regulations, the Trust or BAAI shall immediately so notify BNY in writing and thereafter shall furnish BNY at all appropriate times with the values of such securities and such Fund's net asset value or other amounts otherwise to be calculated by BNY, or, subject to the prior approval of BNY, instruct BNY in writing to value securities and make such computations in a manner which the Trust or BAAI then represents in writing to be consistent with all applicable laws and regulations. The Trust or BAAI may also from time to time, subject to the prior approval of BNY, instruct BNY in writing to make computations other than as specified in this Section of this Agreement. By giving such instruction, the Trust or BAAI shall be deemed to have represented that such instruction is consistent with all applicable laws and regulations and the then-current effective prospectus(es) of the particular Fund. The Trust or BAAI shall have sole responsibility for determining the method of valuation of securities and the method of computations, and all computations, valuation of securities and the method of computing each Fund's net asset value shall be subject to approval by the Trust and BAAI. BNY shall not be liable for relying on any price provided by any pricing service believed by BNY to be reliable, and the Trust or BAAI shall furnish values when the same are not available from a 5 pricing service utilized by BNY, with such furnishing to constitute an instruction to BNY to rely on the provided values. (c) BNY shall be responsible for determining and properly reflecting in the computations made by it under this Agreement: (i) the taxable nature of any distribution or amount received or deemed received by, or payable to, a Fund; (ii) the taxable nature or effect on a Fund or its shareholders of any corporate actions, class actions, tax reclaims, tax refunds, or similar events; (iii) the taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid, by a Fund to its shareholders; (iv) the effect under any federal, state, or foreign income tax laws of a Fund making or not making any distribution or dividend payment, or any election with respect thereto; or (v) any tax accounting; provided, however, that if BNY is not certain of the taxable nature, amount or effect of any such item, it may seek instructions regarding the proper treatment of such item from the Trust or BAAI in accordance with the procedures set forth in Section 1(e), above, and shall have no liability for acting in reliance on such instructions. 6. Termination of Agreement. (a) This Agreement shall become effective as of the date first set forth above and shall remain in full force and effect unless terminated pursuant to the provisions of Section 6(b). (b) This Agreement may be terminated at any time without payment of any penalty, upon 60 days' written notice to BNY, by BAAI or by vote of the Board of the Trust, or upon 180 days' written notice to BAAI and the Trust, by BNY. Upon any such termination, BNY will cooperate with and assist the Trust, BAAI, their agents and any successor administrator(s) or sub-administrator(s) in the substitution/conversion process. In connection with any termination of this Agreement, unless BNY is in breach of this Agreement, the Funds and BAAI agree to pay BNY any compensation and reimbursement for out-of-pocket expenses as may then be due and payable, as well as agreed-upon out-of-pocket expenses incurred in connection with a termination. If BNY is in breach of this Agreement, the Funds and BAAI may offset any compensation or reimbursement amounts owed to BNY by the amount of damages, costs and expenses incurred as a result of BNY's breach, including costs, expenses and reasonable incremental fees for a period not to exceed one year incurred in connection with a conversion by the Trust and BAAI to a successor service provider. In the event of a dispute as to the amount of such damages, the Funds and BAAI agree to escrow the set-off amount. (c) Sections 4 and 8 shall survive this Agreement's termination. 7. Amendments. Except as expressly provided in the first paragraph of Section 1, no provision of this Agreement may be amended or modified orally, but only by an instrument in writing signed by the party against which enforcement of the amendment or modification is sought. 8. Confidentiality. All books, records, information and data pertaining to the business of the Trust, or its prior, present or potential shareholders that are exchanged or received in connection with the performance of BNY's duties under this Agreement shall remain 6 confidential and shall not be disclosed to any other person, except as specifically authorized by the Trust or as may be required by law, and shall not be used for any purpose other than performance of its responsibilities and duties hereunder, and except that BNY retains the right to disclose matters subject to confidentiality to its examiners, regulators, internal or external auditors, its accountants, its internal and external counsel, and to any other entity whenever it is advised by its internal or external counsel that it is reasonably likely that BNY would be liable for a failure to do so. BNY will endeavor to provide written notice to the Trust and BAAI at least five business days prior to any disclosures pursuant to this Section 8, but, provided it shall have provided as much notice as is reasonably practicable under the circumstances, BNY shall have no liability for any failure to do so. 9. Service to Other Companies. The Trust and BAAI acknowledge that BNY now provides, will continue to provide and may in the future provide administrative or other services to other investment companies or series of investment companies, and the Trust and BAAI have no objection to BNY so doing. The Trust and BAAI further acknowledge that the persons employed by BNY to assist in the performance of BNY's duties under this Agreement may not devote their full time to such service and nothing contained in this Agreement shall be deemed to limit or restrict the right of BNY or any affiliate of BNY to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. 10. Miscellaneous. (a) This Agreement shall be construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. Each Fund, the Trust and BAAI hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. To the extent that in any such jurisdiction any of the aforementioned persons may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, each irrevocably agrees not to claim, and it hereby waives, such immunity. (b) In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby, and if any provision is inapplicable to any person or circumstances, it shall nevertheless remain applicable to all other persons and circumstances. (c) Each and every right granted to BNY, the Trust or BAAI hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of BNY, the Trust or BAAI to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by BNY, the Trust or BAAI of any right preclude any other or future exercise thereof or the exercise of any other right. (d) BNY shall not be responsible for delays or errors that occur by reason of circumstances beyond its reasonable control in the performance of its duties under this Agreement, provided that reasonable back-up and disaster recovery systems are in place, 7 including, without limitation, labor difficulties, mechanical breakdowns, computer breakdowns or malfunctions (hardware or software), flood or catastrophe, acts of God, failures of transportation, communication or power supply, or other similar circumstances. Nor shall BNY be responsible for delays or failures to supply the information or services specified in this Agreement where such delays or failures are caused by the failure of any person(s) other than BNY to supply any instructions, explanations, information, specifications or documentation deemed necessary by BNY in the performance of its duties under this Agreement. (e) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Trust, BNY and/or BAAI shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Trust: Nations Funds Trust 111 Center Street Little Rock, Arkansas 72201 Attention: Richard H. Blank, Jr. To BAAI: Banc of America Advisors, Inc. One Bank of America Plaza 101 South Tryon Street, NC1-002-33-31 Charlotte, NC 28255-0001 Attention: Edward D. Bedard To BNY: The Bank of New York 90 Washington Street 22nd Floor New York, NY 10286 Attention: Stephen E. Grunston (f) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by BNY, nor may BNY delegate responsibility for the performance of any of its duties hereunder, without the written consent of the other parties hereto. (g) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. 8 (h) The captions of 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. (i) This Agreement constitutes the entire agreement between the parties hereto with respect to the provision by BNY of sub-administrative services and the receipt of fees therefor, and supersedes all prior arrangements or understandings, written or oral, with respect to the provision by BNY of such services and the receipt of fees therefor. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date first written above. THE BANK OF NEW YORK By: /s/ Stephen E. Grunston ----------------------- Stephen E. Grunston Vice President BANC OF AMERICA ADVISORS, INC. By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST By: /s/ James E. Banks, Jr. ----------------------- James E. Banks, Jr. Assistant Secretary 9 SCHEDULE I 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund I-1 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund 58. Nations California Intermediate Municipal Bond Fund 59. Corporate Bond Portfolio 60. Mortgage- and Asset-Backed Portfolio 61. High Income Portfolio 62. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 28th day of August, 2002. THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President I-3 SCHEDULE II FUND ADMINISTRATION SERVICES BNY shall perform the following sub-administrative services, in addition to any other services agreed to from time to time: .. Monitor and document compliance by the Funds with their policies and restrictions as delineated in their prospectuses and statements of additional information, including any supplements or amendments thereto, and with the rules and regulations under the 1940 Act utilizing Charles River Development's compliance monitoring system or by such other means as the parties may agree. BAAI shall be responsible for communicating such policies and restrictions, including any changes thereto, to BNY by such means as the parties agree. .. Provide income attribution summary schedules necessary for year-end tax reporting, including the attached examples. Provide a gross up for foreign taxes on a per share basis and the redesignation of income and capital gains on a per share basis. .. Prepare federal, state, excise and local income tax returns for the Funds and file such returns upon the approval of the Funds' independent accountants; monitor, report on and prepare periodic worksheet and tax provision packages with respect to Sub-Chapter M qualifications; prepare and file all Form 1099s with respect to the Funds' Trustees; monitor compliance with Section 4982 of the Internal Revenue Code; calculate and maintain records pertaining to original issue discount and premium amortization as required; identify wash sales and all other book/tax differences, and report results to the Funds' independent accountants and Funds management; and such other duties relating to federal and/or state tax compliance as the parties may agree. BNY shall be responsible for providing all pertinent tax information to the Funds' independent accountants. .. Prepare Return of Capital Statement of Position 93-2 adjustments. .. Support BAAI in its preparation of the schedules and provide BAAI unaudited quarterly and semi-annual and audited annual financial statements and schedules of Fund investments by providing, without limitation, each Funds' schedule of investments and general ledger in electronic format and/or hard copy, as required, and such other information as may be necessary to complete such financial reports. .. Prepare statistical reports for outside information services (referenced in Schedule V), and such other information services as the parties may agree, including the ICI expense survey. .. Prepare calculations for capital gains pursuant to IRS rules in conjunction with BAAI and the Funds' independent accountant. .. Attend Fund shareholder and Board of Trustees meetings as requested by BAAI, including making such presentations as are appropriate, and, with respect to the Fund administration II-1 services described herein, provide such periodic and special reports to the Trust and BAAI as the Trust and BAAI shall reasonably request. FUND ACCOUNTING SERVICES BNY shall provide all accounting and recordkeeping services necessary and appropriate for the business of the Funds, including but not limited to those set forth below. Required Records; Ledgers and Journals BNY shall keep current the following accounts and records relating to the business of the Funds, in such form as is required by the 1940 Act and the rules thereunder, and generally accepted accounting principles, to support all filings under applicable federal and state tax laws and regulations and as may be mutually agreed to among the Trust, BAAI and BNY, and shall make available to BAAI and/or the Trust upon request: 1. Cash Receipts Journal 2. Cash Disbursements Journal 3. Dividends Paid and Payable Schedule (book vs. tax basis) 4. Purchase and Sales Journals - Portfolio Securities 5. Realized/Unrealized Gain (Loss) Reports 6. Subscription and Redemption Journals 7. Security Ledgers - Transaction Report and Tax Lot Holdings Report 8. Broker Ledger - Commission Report 9. Daily Expense Accruals 10. Daily Interest Accruals 11. Daily Trial Balance 12. Portfolio Interest Receivable and Income Journal 13. Portfolio Dividend Receivable and Income Register 14. Listing of Portfolio Holdings - showing cost, market value and percentage of portfolio comprised of each security 15. Aged Receivables (dividends, interest, tax reclaiming) 16. Portfolio Turnover Rate 17. Cash reconciliations 18. Position reconciliations BNY will be responsible for maintaining, in accordance with Section 31 and the rules thereunder of the 1940 Act, all books and records so required and generated in the course of performing their duties under this agreement. Further, at a minimum, BNY shall maintain on-site the above referenced reports as of each month end for the most recent fiscal year-ended and the current fiscal year. II-2 Daily Accounting Services BNY shall perform the following services on each Business Day: 1. Calculate Net Asset Value (NAV), and Public Offering Price (POP) Per Share Pursuant to SEC formulas: . Update the valuation of security positions held by each Fund's portfolio in accordance with the Fund's Pricing Procedures and any other appropriate procedures established by the Board and BAAI as BAAI shall provide BNY in writing . When instructed by BAAI, enter manual prices supplied by broker and link to pricing procedures . Calculate each Fund's NAV/POP in accordance with the applicable Pricing Procedures approved by the Trust's Board of Trustees and prepare NAV proof sheet. Review components of change in NAV for reasonableness based on the tolerance levels as BAAI shall direct BNY in writing . Review variance reporting for price changes in individual securities using variance levels established by Fund and report to Fund portfolio managers and to BAAI . Review for ex-dividend items indicated by pricing sources; trace to general ledger for agreement . Communicate required pricing and yield information (NAV/POP), as appropriate, to BAAI, the Funds' transfer agent and sub-transfer agent and, electronically, to NASDAQ and to such other third parties as designated by the Funds with respect to its various distribution channels. In addition, provide Fund share activity to BAAI. 2. Dividend Rates/Yields/Dollar Weighted Average Maturity: . Calculate, subject to the approval of BAAI, net investment income available for distribution daily as appropriate . Calculate daily dividend rate, and 1, 7, 30-day yields/SEC yields . Calculate dollar weighted average maturity 3. Determine and Report Cash Availability: . Receive daily cash and transaction statements from the Funds' custodian . Complete daily bank cash reconciliations (including documentation of any reconciling items) and notify the Funds' custodian . Report investable cash to BAAI and Fund sub-advisers 4. Daily Expense Accruals: . Accrue individual expenses on a daily basis based on Instructions provided by BAAI, except for those instances where such an adjustment would cause a full penny break in NAV, in which case such adjustment will be included in the calculation of NAV on the day received . If applicable, accrue daily amortization of organization expense as instructed by BAAI II-3 . If applicable, accrue daily Rule 12b-1 Plan expenses . Adjust expense accruals as instructed by BAAI and provide reports as requested by BAAI 5. Verify and Record All Daily Income Accruals for Debt Issues: . Track income and provide year end tax schedules . Review and verify all interest and amortization reports . Periodic tie-out of receivables . Ensure security masters denote proper interest and amortization methods as per the fund set up sheets as instructed by BAAI 6. Monitor Securities: . Review each Fund's portfolio holdings and current day's security trades for dividend activity . Interface with Funds' custodian for timely collection and postings of corporate actions, dividends and interest pre-payments 7. Enter All Security Trades: . Review verification of trade and interest calculations . Verify settlement through custodian statements . Maintain security ledger transaction reporting . Maintain tax lot holdings . Determine realized gains or losses on security trades . Provide broker commission information 8. Enter All Fund Share Transactions: . Periodically reconcile dividend payable amounts with the Funds' transfer agent . Process activity identified on transfer agent reports . Verify settlement through custodian statements . Reconcile to transfer agency report balances . Process and track capital stock gain/loss activity 9. Prepare Daily Trial Balance: . Post manual entries to general ledger . Post custodian bank activity . Require automated settled transactions between custody and activity records (prepare, clear and post) . Post shareholder and security transactions . Post and verify income and expense accruals and resolve differences . Prepare general ledger . Post corporate action activity II-4 10. Review and Reconcile Custodian Statements: . Verify all posted interest, dividends, expenses, and shareholder and security payments/receipts, etc. when requested . Post all cash settlement activity to trial balance . Reconcile to ending cash balance accounts . Report to BAAI the status of past due items and failed trades with the custodian o Reconcile cash exception Income items, tax reclaims and past due income items with custody area 11. Preparation of Accounting Reports: . Price Variance Report . Trial Balance . Portfolio Valuation . NAV Calculation Report . Cash Availability . Change in NAV . Non-standard entries . Stale Price Report . Other such reports as may be reasonably requested by BAAI Monthly/Quarterly Services BNY shall provide the following services on a monthly or quarterly basis, within such timeframe as may be mutually agreed upon by BNY, the Trust and BAAI: 1. Submission of Monthly Accounting Reports as mutually agreed upon 2. Reconcile Asset Listing to Custodian Asset Listing 3. Provide Monthly Analysis and Reconciliation of Trial Balance Accounts 4. Prepare Documentation Supporting the Preparation of: . SEC yield reporting . Income by state reporting . Standard Industry Code Valuation Report (please provide BAAI's industry code classifications/is there a standard for all Funds) . Alternative Minimum Tax Income segregation schedule II-5 5. Provide Upon Request Broker Commission and Net Trade Reports Annual (and Semi-Annual) Accounting Services BNY shall provide the following services on an annual and semi-annual basis: 1. Supply auditors InvestOne reports supporting securities and shareholder transactions, income and expense accruals, etc. during the year in accordance with standard audit assistance requirements 2. Provide BAAI with information to assist BAAI in the preparation of NSAR filings Other Core Services BNY shall provide the following services: . Accrete discounts and amortize premiums to put and call events as directed by BAAI and in a manner acceptable under generally accepted accounting principles . Process principal repayments on mortgage backed securities . Update variable securities with current rates . Process corporate action events through a primary vender feed, and monitor results via Reuters, Bloomberg, or other available sources as the parties may agree . Perform automated portfolio pricing with a second vendor as requested by BAAI . Produce documents and respond to inquiries during account and SEC examinations Money Market Funds: Prepare daily mark to market reports and analysis in compliance with Rule 2a-7 including: . Calculating the daily portfolio weighted average maturity . Report portfolio diversification based on trade/security information provided by BAAI by: Country, State, Tier, Liquidity, Asset Backed Securities, Industry, Letter of Credit . Listing percentage of portfolio maturing in specified intervals (i.e., number of days) . Providing issuer and guarantor diversification exception reporting International Funds: BNY shall provide the following services: . Report in base and local currency II-6 . Processing of tax liability on foreign income subject to approval of BAAI . Daily variance analysis performed on FX rates for security position held . Produce automated bifurcation reporting in compliance with IRC Section 988 . Mark to market security receivables and payables on a daily basis . Determine portfolio exposure by country and currency In addition to the above, BNY will provide additional support as agreed upon from time to time (i.e., financial statement production). II-7 Federal Obligation Percentage The following is federal obligation information on the Nations Funds portfolio earnings credited to your account in 1997. This information is provided to enable you to calculate your state tax liability if you live in a state which does not tax income from U.S. government obligations. We recommend that you consult your tax adviser if you have questions regarding the requirements for reporting this information as the requirements vary from state to state.
- -------------------------------------------------------------------------------------------------------------- Direct and Non- FUND Government Qualifying Agency Income/2/ Total Obligations/1/ - -------------------------------------------------------------------------------------------------------------- Nations Balanced Assets Fund 3.30% 96.70% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Cash Reserves 1.26% 98.74% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Diversified Income Fund 28.86% 71.14% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 2.36% 97.64% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 0.09% 99.91% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Global Government Income Fund 9.21% 90.79% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Government Money Market Fund 99.78% 0.22% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Government Reserves 31.19% 68.81% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Government Securities Fund 35.09% 64.91% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations International Growth Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 12.65% 87.35% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations LifeGoal Growth Portfolio 0.10% 99.90% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 16.36% 83.64% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 0.33% 99.67% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Managed Value Index Fund 0.00% 100.00% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Pacific Growth Fund 1.73% 98.27% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Prime Fund 5.52% 94.48% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Short-Intermediate Government Fund 66.12% 33.88% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Short-Term Income Fund 10.64% 89.36% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Small Company Growth Fund 0.16% 99.84% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Strategic Fixed Income Fund 20.21% 79.79% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Treasury Fund 21.25% 78.75% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Treasury Reserves 17.46% 82.45% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations U.S. Government Bond Fund 90.51% 9.49% 100.00% - -------------------------------------------------------------------------------------------------------------- Nations Value Fund 0.00% 100.00% 100.00% - --------------------------------------------------------------------------------------------------------------
/1/ "Direct Obligations" include U.S. Treasury bills, notes, and bonds. "Government Agency" covers those non-mortgage related obligations issued by federal agencies including but not limited to, the Student Loan Marketing Association (SLMA), the Federal Farm Credit Bank, the Federal Deposit Insurance Corporation (FDIC), and the Federal Financing Bank. These obligations are backed by the full faith and credit of the U.S. government. II-8 /2/ "Non-Qualifying Income" includes earnings derived from repurchase agreements, money market instruments such as agency-issued commercial paper, other regulated investment companies, corporate obligations, and obligations issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corp. (FHLMC). Capital Gains Information For Residents Of South Carolina For each of the Funds, the amount of capital gains distribution which is from assets held two or more years can be determined by multiplying each capital gain distribution from your year-end statement by the appropriate percentages:
- ------------------------------------------------------------------------------------------------------------------- FUND May 30, 1997 Distribution November 7, 1997 Distribution ------------------------- ----------------------------- - ------------------------------------------------------------------------------------------------------------------- Nations Balanced Assets Fund 5.80% 17.51% - ------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 46.05% 40.53% - ------------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% 22.75% - ------------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 33.38% 21.24% - ------------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 37.09% 51.39% - ------------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 8.97% 13.84% - ------------------------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond - 99.04% Fund - ------------------------------------------------------------------------------------------------------------------- Nations Global Government Income Fund 0.00% - - ------------------------------------------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund - 100.00% - ------------------------------------------------------------------------------------------------------------------- Nations International Equity Fund - 100.00% - ------------------------------------------------------------------------------------------------------------------- Nations International Growth Fund - 100.00% - ------------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 0.00% - - ------------------------------------------------------------------------------------------------------------------- Nations Municipal Income Fund - 98.42% - ------------------------------------------------------------------------------------------------------------------- Nations Small Company Growth Fund - 6.12% - ------------------------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate - 79.38% Municipal Bond Fund - ------------------------------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 93.25% - - ------------------------------------------------------------------------------------------------------------------- Nations U.S. Government Bond Fund - 46.40% - ------------------------------------------------------------------------------------------------------------------- Nations Value Fund 61.85% 66.01% - -------------------------------------------------------------------------------------------------------------------
II-19 Percentage Of Municipal Income By State and Territory Many states do not tax income derived from investments in their own state obligations or in investments subject to agreements between their state and other states. The following chart shows the percentage of income excluding capital gains in the various Nations Funds portfolios derived from investments in municipal obligations. This percentage indicates the amount that may be tax-exempt in your state.
Nations Nations Short- Nations Nations Nations Tax- Term Intermediate Municipal Municipal STATE Exempt Municipal Municipal Bond Income Reserves Fund Income Fund Fund Fund - ----------------------------------------------------------------------------------------------------- Alabama 2.50% 0.00% 1.00% 2.93% 3.73% - ----------------------------------------------------------------------------------------------------- Alaska 1.18% 4.04% 2.17% 3.38% 0.45% - ----------------------------------------------------------------------------------------------------- Arizona 5.09% 3.42% 3.11% 1.74% 1.22% - ----------------------------------------------------------------------------------------------------- Arkansas 0.17% 0.00% 0.65% 0.99% 0.23% - ----------------------------------------------------------------------------------------------------- California 2.07% 0.00% 0.70% 2.63% 4.83% - ----------------------------------------------------------------------------------------------------- Colorado 3.59% 0.00% 2.11% 1.15% 3.70% - ----------------------------------------------------------------------------------------------------- Connecticut 0.03% 0.00% 1.24% 1.30% 0.00% - ----------------------------------------------------------------------------------------------------- Delaware 2.61% 0.00% 0.02% 0.00% 1.46% - ----------------------------------------------------------------------------------------------------- District of 1.04% 1.64% 0.89% 1.34% 1.69% Columbia - ----------------------------------------------------------------------------------------------------- Florida 7.25% 1.08% 6.75% 7.84% 4.89% - ----------------------------------------------------------------------------------------------------- Georgia 6.06% 2.74% 4.02% 7.64% 8.30% - ----------------------------------------------------------------------------------------------------- Guam 0.00% 3.70% 0.33% 0.52% 0.00% - ----------------------------------------------------------------------------------------------------- Hawaii 0.42% 0.81% 2.17% 1.50% 0.00% - ----------------------------------------------------------------------------------------------------- Idaho 0.25% 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------- Illinois 14.19% 5.49% 8.18% 5.01% 9.66% - ----------------------------------------------------------------------------------------------------- Indiana 2.84% 1.69% 0.94% 3.44% 1.54% - ----------------------------------------------------------------------------------------------------- Iowa 0.25% 0.88% 0.70% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------- Kansas 2.42% 0.42% 0.65% 1.53% 0.00% - ----------------------------------------------------------------------------------------------------- Kentucky 3.80% 0.00% 0.04% 0.22% 2.53% - ----------------------------------------------------------------------------------------------------- Louisiana 2.33% 0.41% 0.07% 0.00% 2.39% - ----------------------------------------------------------------------------------------------------- Maine 0.37% 0.00% 0.61% 0.08% 0.00% - ----------------------------------------------------------------------------------------------------- Maryland 0.80% 1.76% 3.10% 0.00% 0.55% - ----------------------------------------------------------------------------------------------------- Massachusetts 0.12% 2.40% 3.02% 3.85% 0.00% - ----------------------------------------------------------------------------------------------------- Michigan 2.34% 7.12% 1.82% 1.99% 2.99% - ----------------------------------------------------------------------------------------------------- Minnesota 0.86% 0.43% 1.11% 0.14% 0.31% - ----------------------------------------------------------------------------------------------------- Mississippi 0.80% 0.00% 2.11% 1.05% 0.32% - ----------------------------------------------------------------------------------------------------- Missouri 7.88% 0.49% 2.60% 2.02% 1.69% - ----------------------------------------------------------------------------------------------------- Montana 0.56% 0.00% 0.00% 0.00% 0.64% - ----------------------------------------------------------------------------------------------------- Nebraska 0.22% 0.00% 0.22% 0.10% 0.21% - ----------------------------------------------------------------------------------------------------- Nevada 0.00% 3.39% 2.61% 1.74% 0.00% - ----------------------------------------------------------------------------------------------------- New Hampshire 0.00% 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------- New Jersey 0.32% 1.18% 2.76% 0.82% 0.00% - ----------------------------------------------------------------------------------------------------- New Mexico 0.55% 3.04% 0.92% 0.38% 1.82% - ----------------------------------------------------------------------------------------------------- New York 0.22% 3.45% 2.59% 4.28% 0.00% - -----------------------------------------------------------------------------------------------------
II-10
Nations Nations Short- Nations Nations Nations Tax- Term Intermediate Municipal Municipal STATE Exempt Municipal Municipal Bond Income Reserves Fund Income Fund Fund Fund - --------------------------------------------------------------------------------------------------- North Carolina 2.48% 1.16% 2.47% 1.58% 0.42% - --------------------------------------------------------------------------------------------------- North Dakota 0.00% 0.25% 0.00% 0.00% 0.26% - --------------------------------------------------------------------------------------------------- Ohio 1.40% 0.15% 0.63% 1.54% 5.85% - --------------------------------------------------------------------------------------------------- Oklahoma 0.38% 0.42% 0.66% 0.00% 0.11% - --------------------------------------------------------------------------------------------------- Oregon 1.31% 0.00% 0.80% 1.18% 0.72% - --------------------------------------------------------------------------------------------------- Pennsylvania 3.17% 4.66% 2.81% 4.39% 2.43% - --------------------------------------------------------------------------------------------------- Puerto Rico 0.00% 1.07% 0.27% 0.09% 0.00% - --------------------------------------------------------------------------------------------------- Rhode Island 0.21% 0.00% 0.39% 0.59% 0.00% - --------------------------------------------------------------------------------------------------- South Carolina 1.94% 2.13% 1.82% 2.79% 4.19% - --------------------------------------------------------------------------------------------------- South Dakota 0.00% 0.77% 0.00% 0.00% 0.46% - --------------------------------------------------------------------------------------------------- Tennessee 1.40% 4.86% 1.55% 2.77% 6.35% - --------------------------------------------------------------------------------------------------- Texas 5.07% 15.58% 11.44% 10.38% 9.72% - --------------------------------------------------------------------------------------------------- Utah 1.63% 0.00% 0.13% 2.01% 1.70% - --------------------------------------------------------------------------------------------------- Vermont 0.00% 0.00% 0.00% 0.00% 0.00% - --------------------------------------------------------------------------------------------------- Virginia 1.22% 2.51% 6.51% 1.48% 4.04% - --------------------------------------------------------------------------------------------------- Washington 2.17% 11.60% 7.18% 9.47% 1.15% - --------------------------------------------------------------------------------------------------- West Virginia 1.86% 0.00% 0.22% 0.57% 1.46% - --------------------------------------------------------------------------------------------------- Wisconsin 2.11% 2.67% 2.24% 0.41% 3.07% - --------------------------------------------------------------------------------------------------- Wyoming 0.01% 0.00% 0.00% 0.47% 0.85% - ---------------------------------------------------------------------------------------------------
State Specific Tax-Exempt Funds For residents of the following states, a portion of income (excluding capital gains) derived from Nations Funds state-specific municipal bond funds for the year ended December 31, 1997 is exempt from regular federal and state income taxes. For certain investors, a portion of income may be subject to the federal Alternative Minimum Tax.
State Exempt Federal Exempt FUND Percentage Percentage - ---------------------------------------------------------------------------------------------------- Nations Florida Intermediate Municipal Bond Fund 98.26% 100.00% - ---------------------------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 97.24% 99.71% - ---------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 98.93% 99.79% - ---------------------------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 97.35% 99.13% - ---------------------------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 95.80% 100.00% - ---------------------------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 93.44% 99.48% - ---------------------------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 95.53% 99.87% - ----------------------------------------------------------------------------------------------------
II-11 - ------------------------------------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 97.69% 99.53% - ------------------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 98.72% 99.95% - ------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 93.76% 99.44% - ------------------------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 97.91% 99.89% - ------------------------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 97.47% 100.00% - ------------------------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 81.38% 99.99% - ------------------------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 83.51% 99.39% - ------------------------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 97.87% 99.94% - ------------------------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 95.42% 99.73% - -------------------------------------------------------------------------------------------
Alternative Minimum Tax This information is to be used to calculate your federal Alternative Minimum Tax liability, if applicable. Multiply the percentage below by the Fund distribution (excluding capital gains) to give you the distributions to be added to your Alternative Minimum Taxable income. FUND Percentage - -------------------------------------------------------------------------------- Nations Florida Intermediate Municipal Bond Fund 5.94% - -------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 17.79% - -------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 6.50% - -------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 19.17% - -------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund 6.28% - -------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 4.17% - -------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 10.55% - -------------------------------------------------------------------------------- Nations Municipal Income Fund 12.44% - -------------------------------------------------------------------------------- Nations Municipal Reserves 9.79% - -------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 4.23% - -------------------------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 14.86% - -------------------------------------------------------------------------------- Nations Short-Term Municipal Income Fund 9.96% - -------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 6.22% - -------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 15.57% - -------------------------------------------------------------------------------- Nations Tax-Exempt Fund 16.64% - -------------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 9.53% - -------------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 16.04% - -------------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 4.09% - -------------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 16.83% - -------------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 6.83% - -------------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 14.66% - -------------------------------------------------------------------------------- II-12 Corporate Qualifying Dividends The following information is provided to enable shareholders to calculate the amount of dividends paid by the Fund which qualify for the corporate dividend received deduction. Domestic Domestic & FUND Corporations Foreign Corporations - -------------------------------------------------------------------------------- Nations Balanced Assets Fund 6.48% 6.82% - -------------------------------------------------------------------------------- Nations Capital Growth Fund 32.82% 34.22% - -------------------------------------------------------------------------------- Nations Disciplined Equity Fund 18.88% 19.50% - -------------------------------------------------------------------------------- Nations Emerging Growth Fund 19.87% 19.95% - -------------------------------------------------------------------------------- Nations Emerging Markets Fund 0.00% 100.00% - -------------------------------------------------------------------------------- Nations Equity Income Fund 30.13% 30.70% - -------------------------------------------------------------------------------- Nations Equity Index Fund 50.88% 52.15% - -------------------------------------------------------------------------------- Nations International Equity Fund 0.00% 100.00% - -------------------------------------------------------------------------------- Nations International Growth Fund 0.00% 100.00% - -------------------------------------------------------------------------------- Nations Managed Index Fund 84.38% 85.49% - -------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 22.43% 22.46% - -------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 75.88% 75.88% - -------------------------------------------------------------------------------- Nations Managed Value Index Fund 75.78% 75.78% - -------------------------------------------------------------------------------- Nations Pacific Growth Fund 0.00% 100.00% - -------------------------------------------------------------------------------- Nations Value Fund 44.32% 45.23% - -------------------------------------------------------------------------------- Florida Intangibles Tax Percentage/3/ Exempt FUND Percentage Equity Nations Balanced Assets Fund 19.37% - -------------------------------------------------------------------------------- Nations Capital Growth Fund 0.00% - -------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% - -------------------------------------------------------------------------------- Nations Emerging Growth Fund 0.00% - -------------------------------------------------------------------------------- Nations Emerging Markets Fund 0.00% - -------------------------------------------------------------------------------- Nations Equity Income Fund 0.00% - -------------------------------------------------------------------------------- Nations Equity Index Fund 0.11% - -------------------------------------------------------------------------------- Nations International Equity Fund 0.00% - -------------------------------------------------------------------------------- Nations International Growth Fund 0.00% - -------------------------------------------------------------------------------- Nations LifeGoal Growth Portfolio 0.00% - -------------------------------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 0.00% - -------------------------------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 0.00% - -------------------------------------------------------------------------------- Nations Managed Index Fund 0.13% - -------------------------------------------------------------------------------- II-13 Exempt FUND Percentage - ------------------------------------------------------------------------------- Nations Managed Index Fund 0.13% - ------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 0.00% - ------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 0.00% - ------------------------------------------------------------------------------- Nations Managed Value Index Fund 0.00% - ------------------------------------------------------------------------------- Nations Pacific Growth Fund 0.00% - ------------------------------------------------------------------------------- Nations Value Fund 0.00% - ------------------------------------------------------------------------------- Fixed Income Nations Diversified Income Fund 39.79% - ------------------------------------------------------------------------------- Nations Global Government Income Fund 0.00% - ------------------------------------------------------------------------------- Nations Government Securities Fund 0.00% - ------------------------------------------------------------------------------- Nations Short-Intermediate Government Fund 63.44% - ------------------------------------------------------------------------------- Nations Short-Term Income Fund 8.01% - ------------------------------------------------------------------------------- Nations Strategic Fixed Income Fund 8.28% - ------------------------------------------------------------------------------- Nations U.S. Government Bond Fund 0.00% - ------------------------------------------------------------------------------- Money Market Nations Cash Reserves 0.46% - ------------------------------------------------------------------------------- Nations Government Money Market Fund 100.00% - ------------------------------------------------------------------------------- Nations Government Reserves 24.61% - ------------------------------------------------------------------------------- Nations Prime Fund 0.00% - ------------------------------------------------------------------------------- Nations Treasury Fund 0.00% - ------------------------------------------------------------------------------- Nations Treasury Reserves 12.56% - ------------------------------------------------------------------------------- Municipal Nations Florida Intermediate Municipal Bond Fund 100.00% - ------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 100.00% - ------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 0.72% - ------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 0.00% - ------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund 0.18% - ------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 1.30% - ------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 9.92% - ------------------------------------------------------------------------------- Nations Municipal Income Fund 0.00% - ------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 0.93% - ------------------------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 2.06% - ------------------------------------------------------------------------------- Nations Short-Term Municipal Income Fund 2.44% - ------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 0.00% - ------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 5.29% - ------------------------------------------------------------------------------- Nations Tax-Exempt Fund 0.00% - ------------------------------------------------------------------------------- Nations Municipal Reserves 0.00% - ------------------------------------------------------------------------------- II-14 Exempt FUND Percentage - ---------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 4.25% - ---------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 7.81% - ---------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 0.26% - ---------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 3.06% - ---------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 0.00% - ---------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 0.00% - ---------------------------------------------------------------------------- /3/ If any portion of a fund's shares is subject to the Florida Intangibles Tax, then only U.S. government obligations will retain their tax-exempt status. Obligations issued by Florida would lose their exempt status and be subject to the intangibles tax. Additional Information: As a shareholder of Nations International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and or Nations Global Government Income Fund who received dividends, you are entitled to receive your choice of either a foreign tax credit or an itemized deduction for foreign taxes paid by the Fund. Your portion of the foreign taxes paid by the Fund in 1997 is reported in Box 3 of your Form 1099-DIV. To take an itemized deduction for your share of the foreign taxes paid by the Fund, include the amount in Box 3 of Form 1099-DIV on Schedule A, Line 8 of your Form 1040. The TaxPayer Relief Act of 1997 has modified the flow-through status of Foreign Tax Credits ("FTCs"). As a result, a percentage of FTC might not be eligible for credit. In order to assist you in determining the amount of Foreign Tax Paid which is not eligible for a credit, multiply the percentage listed in Column A below, by the Foreign Tax Paid ("FTP") amount reported on Form 1099-DIV, box 3. For each fund, deduct this amount from the FTP (box 3) and report the total resulting amounts in Form 1040, Line 43. To compute the allowable credit, individual shareholders must complete IRS Form 1116 and attach it to their Form 1040. Corporate shareholders should complete Form 1118. The chart below should be used to prepare either of these Forms. Although it will generally be more advantageous to claim a credit for the foreign taxes paid, the ability to claim a credit depends on your individual tax situation. We suggest that you consult your tax adviser to determine your best course of action. II-15 (A) Amount Not (B) Foreign Source Fund Eligible For Foreign Income Factor Tax Credit Nations Emerging Markets Fund 0.00% .38792129 Nations International Equity Fund 0.00% .51953104 Nations Pacific Growth Fund 0.00% .48509903
Foreign Tax Factor (C) and Foreign Income Factor (D) - -------------------------------------------------------------------------------------------- Nations Nations Emerging Nations Pacific International Equity Markets Fund Growth Fund Country Fund C D C D C D Argentina 0.00% 0.42% 0.00% 5.08% 0.00% 0.00% Australia 2.83% 5.71% 0.00% 0.00% 22.12% 10.08% Belgium 2.22% 1.65% 0.00% 0.00% 0.00% 0.00% Brazil 1.05% 3.15% 21.05% 28.62% 0.00% 0.00% Egypt 0.00% 0.00% 0.00% 1.40% 0.00% 0.00% Switzerland 4.80% 4.68% 0.00% 0.00% 0.00% 0.00% Chile 1.68% 1.38% 15.27% 7.20% 0.00% 0.00% Germany 4.00% 4.46% 0.00% 0.00% 0.00% 0.00% Spain 3.46% 2.60% 0.00% 0.00% 0.00% 0.00% France 10.81% 8.22% 0.00% 0.00% 0.00% 0.00% Great Britain 33.23% 26.80% 2.78% 1.05% 0.00% 0.00% Greece 0.00% 0.00% 12.75% 3.69% 0.00% 0.00% Hungary 0.00% 0.00% 0.00% 0.52% 0.00% 0.00% Hong Kong 0.00% 9.85% 0.00% 8.65% 0.00% 65.32% Indonesia 0.06% 0.39% 6.10% 4.01% 11.61% 5.07% Israel 0.00% 0.00% 0.48% 0.64% 0.00% 0.00% India 0.00% 0.19% 0.11% 2.33% 0.00% 0.00% Italy 2.44% 1.82% 0.00% 0.00% 0.00% 0.00% Japan 12.01% 8.95% 0.00% 0.00% 0.00% 0.00% Korea 0.90% 1.10% 0.93% 1.55% 11.09% 4.59% Malaysia 2.25% 0.84% 20.78% 5.18% 35.89% 8.45% Mexico 0.00% 4.81% 0.00% 8.74% 0.00% 0.00% Netherlands 9.91% 7.29% 0.00% 0.00% 0.00% 0.00% Norway 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Peru 0.00% 0.38% 0.00% 3.50% 0.00% 0.00% Philippines 0.04% 0.03% 3.24% 0.97% 1.60% 0.44% Portugal 0.48% 0.48% 5.91% 3.94% 0.00% 0.00% Russia 0.00% 0.00% 0.00% 0.28% 0.00% 0.00% Sweden 3.45% 2.57% 0.00% 0.00% 0.00% 0.00% Singapore 3.84% 1.62% 0.00% 0.00% 16.17% 5.02% Thailand 0.54% 0.61% 0.99% 0.74% 1.52% 1.03% Taiwan 0.00% 0.00% 0.00% 1.11% 0.00% 0.00% South Africa 0.00% 0.00% 9.61% 10.80% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
II-16 Instructions For Calculating Foreign Tax and Foreign Source Income by Country: 1. To calculate your foreign tax by country, multiply the total foreign taxes (Form 1099-DIV, Box 3) by the applicable Foreign Tax Factor percentage (Column C) indicated in the chart to the left. 2. To calculate the total foreign source income, multiply the amount in Box 1b on Form 1099-DIV by the appropriate factor in column B. 3. To calculate the total foreign source income by country, multiply the total foreign source income determined in step 2 by the applicable Foreign Income Factor percentage (Column D) presented in the chart to the left. II-17 SCHEDULE III SERVICE LEVEL PERFORMANCE STANDARDS - -------------------------------------------------------------------------------- Service Standard - -------------------------------------------------------------------------------- 1. Daily Cash Availability [_] 100% accuracy and delivery by 9:00 a.m. EST for Money Market Funds and 9:30 a.m. EST for all others [_] Compensation for univested cash at Nations Cash Reserves' Mill rate - -------------------------------------------------------------------------------- 2. Calculation of daily NAVs [_] 100% accuracy by 5:00 p.m. EST including pricing, expense accruals, cash activity, manual entries, S/H activity. Delivery by 5:45 p.m. EST - -------------------------------------------------------------------------------- 3. Review of daily NAVs [_] 100% review by 5:30 p.m. EST [_] Review of NAV components for reasonableness including analysis of the change in the NAV and the change in mill rates. [_] Review of price variance report [_] Review of manual proof - -------------------------------------------------------------------------------- 4. NASDAQ Reporting [_] 100% accuracy and communication by 5:45 p.m. EST - -------------------------------------------------------------------------------- 5. Daily Pricing and Rate Report (DPRR) [_] 100% accuracy in nightly transmission of DPRRs [_] Money Market Funds-5:30 p.m. EST [_] All other Funds- 6:00 p.m. EST - -------------------------------------------------------------------------------- 6. FundStation Report (SubM) [_] 100% accuracy and nightly transmission by 7:00 p.m. EST - -------------------------------------------------------------------------------- 7. Processing of trade tickets [_] 100% accuracy and processed by T+1 if received by the following cut-off times: [_] All Funds (except International) - 10:00 am (T+1) [_] International - 12:00 p.m. (T+1) [_] Same day settlements - 1:30 p.m. - -------------------------------------------------------------------------------- III-1 - -------------------------------------------------------------------------------- Service Standard - -------------------------------------------------------------------------------- 8. Problem Resolution (general) [_] NAV impact analysis within 1 day [_] Clear and timely communication of 100% of issues [_] Ongoing Tracking - -------------------------------------------------------------------------------- 9. Cash reconciliations [_] Performed daily and sent daily to BAAI (Money Market Funds) and sent weekly to BAAI (all other funds) [_] Issues communicated to BAAI same day [_] Outstanding items addressed within 1 business day - -------------------------------------------------------------------------------- 10. Position Reconciliations [_] Performed daily and sent weekly to BAAI [_] Issues communicated to BAAI same day [_] Open issues addressed within 2 business days - -------------------------------------------------------------------------------- 11. Tax reporting [_] Federal, state, tax returns [_] Tax provision package prepared within time parameters as set by [_] Tax provision packages BAAI/Independent tax personnel including Sub-M and excise (PWC) tax amounts/ distributions [_] Estimates of tax requirements [_] Identification of all book/tax prepared as required by BAAI for differences proper tax planning [_] Capital gain estimate preparations - -------------------------------------------------------------------------------- 12. Statistical Reports [_] Filed within the time parameters as set forth by each statistical service - -------------------------------------------------------------------------------- 13. Expense accruals/payments [_] Payments made on the business day written instructions from an authorized signator received [_] Expense accruals made with 100% accuracy based upon written instructions from BAAI - -------------------------------------------------------------------------------- 14. Management Reports [_] Provided to BAAI within 10 business days of month end - -------------------------------------------------------------------------------- III-2
- ------------------------------------------------------------------------------------------------------ Service Standard - ------------------------------------------------------------------------------------------------------ 15. Year end tax reports [_] Provided to BAAI within the time frame agreed to - ------------------------------------------------------------------------------------------------------ 16. Annual/Semi-Annual Reports [_] Provide Trial Balance within 5 business days after annual/semi-annual period [_] Provide additional financial statement support as agreed to - ------------------------------------------------------------------------------------------------------ 17. Daily Reports [_] To be provided on the following day [_] Provide detailed portfolio valuation [_] Trial Balance - ------------------------------------------------------------------------------------------------------ 18. Daily Cash Sweep [_] 100% accuracy and communication by 2:00 p.m. EST [_] AIM [_] Nuveen - ------------------------------------------------------------------------------------------------------ 19. Post Dividends / Corporate Actions [_] 100% accuracy and posted on effective date - ------------------------------------------------------------------------------------------------------ 20. Monthly Reconciliations [_] Complete reconciliations within 10 business days - ------------------------------------------------------------------------------------------------------ 21. Reporting to Sub-Advisors [_] Provide nightly and other periodic reporting to Nations Funds Sub-Advisors - ------------------------------------------------------------------------------------------------------ 22. Compliance [_] Provide compliance reports as requested by BAAI - ------------------------------------------------------------------------------------------------------
III-3 SCHEDULE IV (Attached) IV-1 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS Effective 12/1/98 Money Market Funds 1 1/4 basis point per annum on the first $3 billion of each portfolio's average net assets; 1 basis point on the next $3 billion; 1/2 of one basis point on the next $4 billion; 1/4 of one basis point on the excess. Domestic Equity 6 basis points per annum on the first $1 billion of each portfolio's average net assets; 4 basis points on the next $500 million; 2 basis points on the next $500 million; 1 basis point on the excess. Domestic Fixed Income 5 basis points per annum on the first $1 billion of each portfolio's average net assets. 3 basis points on the next $500 million. 1 1/2 basis point on the next $500 million. 1/2 of one basis point on the excess. International Funds 7 basis points per annum on the first $1 billion of each portfolio's average net assets; 5 basis points on the next $500 million; 3 basis points on the next $500 million; 1 basis point on the excess. IV-2 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS Effective 12/1/98 Multiple Class Charges $500 per month, per portfolio, for each additional class in excess of nine (9) classes. System Development/Usage/Spectra Report Writer There will be no charges for developing systems interfaces with the Bank or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses The cost of prices for securities exclusively held by Nations obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing of shareholders reports, express mail charges, etc. Billing Cycle The above fees will be billed on a monthly basis. NationsBanc Advisors, Inc. The Bank of New York Approved by: Approved by: /s/ Ira Rosner --------------- Name: Name: Ira Rosner ---------- Title: Title: Vice President --------------- Date: Date: May 7, 1999 ----------- IV-3 NationsBanc Managed Portfolios Fund Accounting and Sub Administration Fee Schedule When Aggregate Assets Exceed $100 billion Fund Type Basis Points - --------- ------------ Money Market - ------------ First $2 billion 0.000100 Next $1 billion 0.000075 On excess (**$3.0 billion) 0.000025 Domestic Equity - --------------- First $500 million 0.000550 Next $500 million 0.000450 Next $500 million 0.000250 Next $500 million 0.000150 On excess (**$2.0 billion) 0.000050 Domestic Fixed Income - --------------------- First $500 million 0.000450 Next $500 million 0.000350 Next $250 million 0.000225 Next $250 million 0.000100 On excess (**$1.5 billion) 0.000050 International - ------------- First $500 million 0.00060 Next $500 million 0.00050 Next $250 million 0.00040 Next $250 million 0.00030 On excess (**$1.5 billion) 0.00005 ** Denotes greater than IV-4 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS (Multi Managers) Multi-Managers $22,000 per annum for each multi-manager going to a single feeder. These fees will be in addition to the following fee schedule now in effect. For each new multi-manager account with assets less than $20 million, we will waive our fees for the first three months. Money Market Funds 1 1/4 basis point per annum on the first $3 billion of each portfolio's average net assets; 1 basis point on the next $3 billion; 1/2 of one basis point on the next $4 billion; 1/4 of one basis point on the excess. Domestic Equity 6 basis points per annum on the first $1 billion of each portfolio's average net assets; 4 basis points on the next $500 million; 2 basis points on the next $500 million; 1 basis point on the excess. Domestic Fixed Income 5 basis points per annum on the first $1 billion of each portfolio's average net assets. 3 basis points on the next $500 million. 1 1/2 basis point on the next $500 million. 1/2 of one basis point on the excess. International Funds 7 basis points per annum on the first $1 billion of each portfolio's average net assets; 5 basis points on the next $500 million; 3 basis points on the next $500 million; 1 basis point on the excess. IV-5 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS (Multi Managers) Multiple Class Charges $500 per month, per portfolio, for each additional class in excess of nine (9) classes. System Development/Usage/Spectra Report Writer There will be no charges for developing systems interfaces with the Bank or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses The cost of prices for securities exclusively held by Nations obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle The above fees will be billed on a monthly basis. NationsBanc Advisors, Inc. The Bank of New York Approved by: Approved by: /s/ Ira Rosner -------------- Name: Name: Ira Rosner ---------- Title: Title: Vice President Date: Date: May 7, 1999 ----------- IV-6 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Financial Services Fund Domestic Equity Funds 5 1/2 basis points per annum on the first $500 million of the portfolio's average net assets; 4 1/2 basis points on the next $500 million; 2 1/2 basis points on the next $500 million; 1 1/2 basis points on the next $500 million; 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer There will be no charges for developing systems interfaces with us or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle The above fees will be billed on a monthly basis. IV-7 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Global Value Fund International Funds 6 basis points per annum on the first $500 million of the portfolio's average net assets; 5 basis points on the next $500 million; 4 basis points on the next $250 million; 3 basis points on the next $250 million; 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer There will be no charges for developing systems interfaces with us or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle The above fees will be billed on a monthly basis. IV-8 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Classic Value Fund Domestic Equity 5 1/2 basis points per annum on the first $500 million of the portfolio's average net assets; 4 1/2 basis points on the next $500 million; 2 1/2 basis points on the next $500 million; 1 1/2 basis points on the next $500 million 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer There will be no charges for developing systems interfaces with us or for on-going uage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle The above fees will be billed on a monthly basis. IV-9 SCHEDULE V All Database Companies Quarterly List - ---------------------- -------------- AMG Data Services Lipper Barron's Morningstar Bloomberg CDA Wiesenberger CDA Wiesenberger Investment Company Institute Commerce Clearing House (CCH) S&P Micropal Forbes Institute for Economic Research Institute for Economic Research Value Line Interactive Data Services Media General Financial Services Investment Company Institute LCG Associates LCG Associates Closed End Fund Digest (Closed End Only) Lipper Lipper - International (Closed End Only) Media General Moody's Investors Service Morningstar S&P Micropal Strategic Insights Value Line V-1 EX-99.23(H)(3) 12 dex9923h3.txt SHAREHOLDER SERVICING PLAN Exhibit 99.23(h)(3) NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") INVESTOR B SHARES Section 1. Each of the proper officers of Nations Funds Trust (the "Trust") is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix A or any other form duly approved by the Trust's Board of Trustees ("Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor B Shares in any of the Trust's Funds (collectively, "Shares") provided that any material modifications of services listed in the Agreement shall be presented for approval or ratification by the Trustees at the next regularly scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Shares of the portfolios listed on Exhibit I (the "Funds") in consideration of a fee, computed monthly in the manner set forth in the applicable Fund's then current prospectus, at an annual rate of up to 0.25% of the average daily net asset value of the Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, administrator, co-administrator and adviser are eligible to become Servicing Agents and to receive fees under this Plan. All expenses incurred by a Fund in connection with the Agreements and the implementation of this Plan shall be borne either by the holders of the Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Shares of a particular Fund, then the expenses may be allocated between or among the Shares of the Funds in a fair and equitable manner. Section 2. The Trust's administrator and/or co-administrator shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's administrator and co-administrator shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Servicing Agents. Section 3. So long as this Plan is in effect, the Trust's distributor shall provide to the Trust's Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. Section 4. Unless sooner terminated, this Plan shall continue in effect for a period of one year from its date of execution and shall continue thereafter for successive annual periods, provided that such continuance is specifically approved by a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement related to this Plan (the "Disinterested Trustees") cast in person at a meeting called for the purpose of voting on this Plan. Section 5. This Plan may be amended at any time with respect to any Fund by the Trust's Board of Trustees, provided that any material amendment of the terms of this Plan (including a material increase of the fee payable hereunder) shall become effective only upon the approvals set forth in Section 4. Section 6. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 7. While this Plan is in effect, the selection and nomination of the Disinterested Trustees shall be committed to the discretion of such Disinterested Trustees. Section 8. The Trust will preserve copies of this Plan, Agreements, and any written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund 54. Nations California Intermediate Municipal Bond Fund 55. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 EX-99.23(H)(4) 13 dex9923h4.txt SHAREHOLDER SERVICING PLAN Exhibit 99.23(h)(4) NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") INVESTOR C SHARES Section 1. Each of the proper officers of Nations Funds Trust (the "Trust") is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix A or any other form duly approved by the Trust's Board of Trustees ("Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor C Shares in any of the Trust's Funds (collectively, "Shares") provided that any material modifications of services listed in the Agreement shall be presented for approval or ratification by the Trustees at the next regularly scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Shares of the portfolios listed on Exhibit I (the "Funds") in consideration of a fee, computed monthly in the manner set forth in the applicable Fund's then current prospectus, at an annual rate of up to 0.25% of the average daily net asset value of the Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, administrator, co-administrator and adviser are eligible to become Servicing Agents and to receive fees under this Plan. All expenses incurred by a Fund in connection with the Agreements and the implementation of this Plan shall be borne either by the holders of the Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Shares of a particular Fund, then the expenses may be allocated between or among the Shares of the Funds in a fair and equitable manner. Section 2. The Trust's administrator and/or co-administrator shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's administrator and co-administrator shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Servicing Agents. Section 3. So long as this Plan is in effect, the Trust's distributor shall provide to the Trust's Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. Section 4. Unless sooner terminated, this Plan shall continue in effect for a period of one year from its date of execution and shall continue thereafter for successive annual periods, provided that such continuance is specifically approved by a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement related to this Plan (the "Disinterested Trustees") cast in person at a meeting called for the purpose of voting on this Plan. Section 5. This Plan may be amended at any time with respect to any Fund by the Trust's Board of Trustees, provided that any material amendment of the terms of this Plan (including a material increase of the fee payable hereunder) shall become effective only upon the approvals set forth in Section 4. Section 6. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 7. While this Plan is in effect, the selection and nomination of the Disinterested Trustees shall be committed to the discretion of such Disinterested Trustees. Section 8. The Trust will preserve copies of this Plan, Agreements, and any written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund 54. Nations California Intermediate Municipal Bond Fund 55. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 EX-99.23(H)(14) 14 dex9923h14.txt TRANSFER AGENCY & SERVICING AGREEMENT Exhibit 99.23(h)(14) TRANSFER AGENCY AND SERVICES AGREEMENT (With Facilities Management Arrangement) THIS AGREEMENT, dated as of this first day of June, 1995 between NATIONS FUND, INC., a Maryland corporation, NATIONS FUND TRUST, a Massachusetts business trust, THE CAPITOL MUTUAL FUNDS, a Massachusetts business trust, NATIONS FUND PORTFOLIOS, INC., a Maryland corporation, and each other investment company which may become a party hereto pursuant to the terms of this Agreement (individually a "Fund", and collectively, the "Funds"), each with its principal place of business at 111 Center Street, Little Rock, Arkansas 72201 and additional offices at 101 South Tryon Street, Charlotte, North Carolina 28255, and THE SHAREHOLDER SERVICES GROUP, INC. (the "Transfer Agent"), a Massachusetts corporation with principal offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109. WITNESSETH WHEREAS, each Fund desires to appoint the Transfer Agent as its transfer agent, dividend disbursing agent and agent in connection with certain other activities and the Transfer Agent desires to accept such appointment; WHEREAS, each Fund may authorize the issuance of Shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets ("Portfolio"); WHEREAS, each Fund and each Portfolio of a Fund subject to this Agreement, including any investment company or Portfolio as may be added to this Agreement pursuant to Section 17, shall be identified in the attached Schedule G; and WHEREAS, the Transfer Agent and NationsBank, N.A. (Carolinas) ("NationsBank") have entered into a Facilities Management Agreement ("Facilities Agreement") dated June 1, 1995 pursuant to which the Transfer Agent has established a servicing and processing center to provide transfer agent services on behalf of the Funds in Charlotte, North Carolina (the "Charlotte Facility"). NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the Funds and the Transfer Agent agree as follows: Article 1 Definitions 1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Articles of Incorporation" shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of a Fund as the same may be amended from time to time. (b) "Authorized Person" of a Fund shall be deemed to include (i) any authorized officer of the Fund; (ii) the members of the Joint Operations Board (as hereinafter defined); or (iii) any person, whether or not such person is an officer or employee of the Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to the Transfer Agent from time to time. (c) "Board of Directors" of a Fund shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be. (d) "Commission" shall mean the Securities and Exchange Commission. (e) "Custodian" of a Fund refers to any custodian or subcustodian of securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement. (f) "Joint Operations Board" shall mean the joint board comprised of one senior representative from the Transfer Agent, one individual designated by the Funds jointly to represent their respective interests and the most senior Transfer Agent manager of the Charlotte Facility. (g) "1940 Act" shall mean the Investment Company Act of 1940 and the rules and regulations promulgated thereunder, all as amended from time to time. (h) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by the Transfer Agent from a person reasonably believed by the Transfer Agent to be an Authorized Person; (i) "Prospectus" of a Fund shall mean collectively the most recently dated Fund Prospectuses and Statements of Additional Information, including any supplements thereto, if any, with respect to each Portfolio of the Fund which have become effective under the Securities Act of 1933 and the 1940 Act. (j) "Shares" of a Fund refers collectively to such shares of capital stock or beneficial interest, as the case may be, or class thereof, of the Fund as may be issued from time to time. (k) "Shareholder" shall mean a record owner of Shares. (l) "Written Instructions" shall mean a written communication signed by a person reasonably believed by the Transfer Agent to be an Authorized Person and actually received by the Transfer Agent. Written Instructions shall include manually executed originals and authorized electronic transmissions, including telefacsimile of a manually executed original or other process. 2 Article 2 Appointment of the Transfer Agent 2.1 Each Fund hereby appoints and constitutes the Transfer Agent as transfer agent and dividend disbursing agent for Shares of the Fund and the Transfer Agent hereby accepts such appointments and agrees to perform the duties hereinafter set forth. Article 3 Duties of the Transfer Agent 3.1 The Transfer Agent shall be responsible for: (a) Administering and performing the customary services of a transfer agent; agent in connection with dividend and distribution functions; and agent in connection with shareholder account and administrative functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares, as more fully described in the written schedule of Duties of the Transfer Agent annexed hereto as Schedule A and incorporated herein, and in accordance with the terms of each Fund's Prospectus, applicable law and the procedures established from time to time between the Transfer Agent and the Funds. (b) Recording the issuance of Shares and maintaining pursuant to Commission Rule 17Ad-10(e) a record of the total number of Shares which are authorized, based upon data provided to it by each Fund, and issued and outstanding. The Transfer Agent shall provide each Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the legality or validity of the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (c) Notwithstanding any of the foregoing provisions of this Agreement, the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (iii) the legality of the declaration of any dividend by the Board of Directors, or the legality of the issuance of any Shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares. 3.2 In addition, each Fund shall verify the establishment of shares or share transactions for each State prior to activation on the Transfer Agent's system and thereafter monitor the daily activity of shares for each State based upon daily transactions recorded by the Transfer Agent and transmitted to the Fund or its designated agent. The responsibility of the Transfer Agent for a Fund's blue sky State registration status is solely limited to the initial establishment of shares or share transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. 3 3.3 In addition to the duties set forth herein, the Transfer Agent shall perform such other duties and functions, and shall be paid such amounts therefor, as may from time to time be agreed upon in writing between the Funds and the Transfer Agent. Article 4 Duties of the Joint Operations Board 4.1 The Joint Operations Board will be responsible for the following with respect to the services to be performed by the Transfer Agent under this Agreement (the "Services"): (a) General oversight of the provision of Services by the Transfer Agent, including, but not limited to, the creation and quarterly review of quality standards governing the Services pursuant to Article 5 hereof, the establishment of strategic and/or operational goals with respect to the Services to be provided at the Charlotte Facility, and addressing such issues and concerns that may arise from time to time amongst the Funds and the Transfer Agent under this Agreement. (b) Review and approval of, from a technical feasibility standpoint, imaging and other new technologies proposed to be used by the Transfer Agent in performing the Services at the Charlotte facility. (c) Review and approval of the Charlotte Facility budget and expense statements, including those costs for which compensation is sought by the Transfer Agent pursuant to Article 8 hereof. (d) Review of those costs incurred by the Transfer Agent, other than in connection with the Charlotte Facility, for which compensation is sought by the Transfer Agent pursuant to Article 8 hereof. 4.2 With respect to matters described in Section 4.1 above, the decision of the Funds' representative on the Joint Operations Board shall control. 4.3 On a monthly basis, the Transfer Agent shall provide to the Joint Operations Board a statement of the internal and external costs incurred by the Transfer Agent in connection with the provision of Services for which the Transfer Agent will seek reimbursement under Article 8 hereof. Article 5 Quality Standards 5.1 The quality of service provided by the Transfer Agent hereunder shall be maintained at or above the levels set forth in Schedule B hereto. Such quality standards shall govern the Services provided by the Transfer Agent until a new set of quality standards is established pursuant to Section 5.2 hereof. 5.2 As soon as practicable after the first ninety (90) days of operation of the Charlotte Facility, the Joint Operations Board shall establish a new set of quality standards reasonably acceptable to the Funds and the Transfer Agent. 4 5.3 The Joint Operations Board shall review and update, if necessary, the quality standards on a semi-annual basis. 5.4 If, at any time during the term of this Agreement, 20% or more of the then-current quality standards (e.g., 2 or more out of 10 standards) are not met by the Transfer Agent during any month (as evidenced by monthly reports), the Funds shall promptly notify the Transfer Agent in writing of such failure and the details relating to such failure. If, any of the failed quality standards are not met by the Transfer Agent during the three month period commencing thirty (30) days after the Transfer Agent receives such notice, the Funds shall have the right to terminate this Agreement on thirty (30) days notice. 5.5 Notwithstanding the foregoing, the Funds shall not have the right to terminate this Agreement based on the failure by the Transfer Agent to have satisfied a quality standard if such failure was caused directly by the negative vote of the Funds' representative on the Joint Operations Board with respect to a commercially reasonable funding request of the Transfer Agent for the Charlotte Facility. Article 6 Recordkeeping and Other Information 6.1 The Transfer Agent shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule A in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act. All records shall be available during regular business hours for inspection and use by the Funds. Where applicable, such records shall be maintained by the Transfer Agent for the periods and in the places required by Rule 31a-2 under the 1940 Act. 6.2 To the extent required by Section 31 of the 1940 Act, the Transfer Agent agrees that all such records prepared or maintained by the Transfer Agent relating to the Services are the property of the relevant Fund and will be preserved, maintained and made available in accordance with such section, and will be surrendered promptly to such Fund on and in accordance with the Fund's request. 6.3 In case of any requests or demands for the inspection of Shareholder records of a Fund, the Transfer Agent will endeavor to notify the Fund of such request and secure Written Instructions as to the handling of such request. The Transfer Agent reserves the right, upon prior notice to the Fund, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to comply with such request. 6.4 Upon reasonable notice by a Fund, the Transfer Agent shall make available during regular business hours such of its facilities and premises employed in connection with the performance of its duties under this Agreement for reasonable visitation by the Fund, or any person retained by the Fund as may be necessary for the Fund to evaluate the quality of the Services performed by the Transfer Agent pursuant hereto. 5 Article 7 Fund Instructions 7.1 The Transfer Agent will have no liability when acting for a Fund in accordance with Written or Oral Instructions believed to have been executed or orally communicated by an Authorized Person of the Fund and will not be held to have any notice of any change of authority of any person until receipt of a Written Instruction thereof from the Fund. The Transfer Agent will also have no liability when processing Share certificates for a Fund which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the Fund and the proper countersignature of the Transfer Agent. 7.2 The Transfer Agent may request Written Instructions from a Fund and may seek advice from legal counsel for the Fund with prior notice to the Fund, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Fund or for the Transfer Agent. Written Instructions requested by the Transfer Agent will be provided by the Fund within a reasonable period of time. 7.3 The Transfer Agent, its officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them with respect to a Fund by any person representing or acting on behalf of the Fund only if said representative is an Authorized Person of the Fund. The Funds agree that all Oral Instructions shall be followed within one business day by confirming Written Instructions, and that the Funds' failure to so confirm shall not impair in any respect the Transfer Agent's right to reply on Oral Instructions. Article 8 Compensation 8.1 The Funds shall reimburse the Transfer Agent for all the Transfer Agent's "Costs" incurred in connection with the provision of Services as set forth in the written Schedule of Costs annexed hereto as Schedule C and incorporated herein and in addition the Funds shall compensate the Transfer Agent for the following amounts (the "Margin"); (a) During the first 36 months of the Initial Term (as defined below), an amount equal to 15% of such Costs during each month. (b) During the last 24 months of the Initial Term and during each Renewal Term (as defined below), an amount equal to 12.5% of such Costs during each month. 8.2 Notwithstanding the foregoing, the charges incurred by the Transfer Agent under the Facilities Agreement with NationsBank and such other expenses set forth in the written schedule of Non-Margin Expenses annexed hereto as Schedule D shall not be included as Costs in connection with the calculation of the Margin amounts set forth in Subsections 8.1(a) and (b). 6 8.3 In addition to the Costs and Margin described above, the Fund shall reimburse the Transfer Agent, and will be billed separately for, those out-of-pocket expenses incurred by the Transfer Agent in the performance of its duties hereunder as specified in the written schedule of out-of-pocket expenses annexed hereto as Schedule E and incorporated herein. 8.4 The Funds agree to pay all fees and out-of-pocket expenses within thirty (30) days following the receipt of the respective invoice. The Funds shall not be obligated to pay amounts that are reasonably in dispute until such dispute is resolved. Article 9 Documents 9.1 In connection with the appointment of the Transfer Agent, each Fund shall, on or before the date this Agreement goes into effect, but in any case within a reasonable period of time for the Transfer Agent to prepare to perform its duties hereunder, deliver or cause to be delivered to the Transfer Agent the documents set forth in the written schedule of Fund Documents annexed hereto as Schedule F. Article 10 Transfer Agent System 10.1 The Transfer Agent shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by the Transfer Agent in connection with the services provided by the Transfer Agent to the Fund herein (the "Transfer Agent System"). 10.2 The Transfer Agent hereby grants to each Fund a limited license to the Transfer Agent System for the sole and limited purpose of having the Transfer Agent provide the services contemplated hereunder and nothing contained in this Agreement shall be construed or interpreted otherwise and such license shall immediately terminate upon the termination of this Agreement. 10.3 The Transfer Agent agrees to provide the Funds with full access to the Transfer Agent System and all enhancements thereto to the same extent that such is made available to other Transfer Agent clients. 10.4 In the event the Funds desire the Transfer Agent to develop any enhancements for the Transfer Agent System, the parties shall agree on the staffing requirements which will be subject to the approval of the Joint Operations Board. 10.5 In the event the Funds request an enhancement to the Transfer Agent System which is estimated to require 5,000 programming hours or more ("Enhancement Project") and the Funds agree to assume the cost of such Enhancement Project, the Funds and the Transfer Agent shall agree in writing on any restrictions imposed on the Transfer Agent with respect to the use of such enhancement prior to commencement of the Enhancement Project. 7 10.6 Each Fund reserves the right to review and examine "imaging" and significant other technological developments to be implemented with the Transfer Agent System from a technical feasibility standpoint. Article 11 Representations and Warranties of the Transfer Agent 11.1 The Transfer Agent represents and warrants to each Fund that: (a) It is a corporation duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (c) All requisite corporate proceedings have been taken to authorize it to enter into this Agreement; (d) It is duly registered with the appropriate regulatory agencies as a transfer agent and such registration will remain in effect for the duration of this Agreement; (e) It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 12 Representations and Warranties of the Funds 12.1 Each Fund represents and warrants to the Transfer Agent that: (a) It is duly organized and existing and in good standing under the laws of the jurisdiction in which it is organized; (b) It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into this Agreement; (c) All corporate proceedings required by said Articles of Incorporation, By-Laws and applicable laws have been taken to authorize it to enter into this Agreement; (d) A registration statement under the Securities Act of 1933, as amended, is currently effective and will remain effective, and all appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale; (e) All outstanding Shares are validly issued, fully paid and non-assessable and that, when Shares are hereafter issued in accordance with the terms of the Fund's Articles of Incorporation and its Prospectus, such Shares shall be validly issued, fully paid and non-assessable. 8 Article 13 Indemnification 13.1 The Transfer Agent shall not be responsible for and each Fund shall indemnify and hold the Transfer Agent harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Transfer Agent or for which the Transfer Agent may be held to be liable (a "Claim") arising out of or attributable to any of the following: (a) Any actions of the Transfer Agent required to be taken pursuant to this Agreement for the Fund unless such Claim resulted from a negligent act or failure to act or bad faith by the Transfer Agent in the performance of its duties hereunder. (b) The Transfer Agent's reasonable reliance on, or reasonable use of information, data, records and documents (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) received by the Transfer Agent from the Fund, or any authorized third party acting on behalf of the Fund, including but not limited to the prior transfer agent for the Fund, in the performance of the Transfer Agent's duties and obligations hereunder. (c) The reliance on, or the implementation of, any Written or Oral Instructions or any other instructions or requests of the Fund which are deemed to be provided by an Authorized Person of the Fund. (d) The offer or sales of Shares by the Fund in violation of any requirement under the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any state with respect to the offer or sale of such Shares in such state. (e) The Fund's refusal or failure to comply with the terms of this Agreement, or any Claim which arises out of the Fund's negligence or misconduct or the breach of any representation or warranty of the Fund made herein. 13.2 In any case in which a Fund may be asked to indemnify or hold the Transfer Agent harmless, the Transfer Agent will notify the Fund promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Fund although the failure to do so shall not prevent recovery by the Transfer Agent, unless the Fund is actually prejudiced thereby, and the Transfer Agent shall keep the Fund advised with respect to all developments concerning such situation. The Fund shall have the option to defend the Transfer Agent against any Claim which may be the subject of this indemnification, and, in the event that the Fund so elects, such defense shall be conducted by counsel chosen by the Fund and satisfactory to the Transfer Agent, and thereupon the Fund shall take over complete defense of the Claim and the Transfer Agent shall sustain no further legal or other expenses in respect of such Claim. The Transfer Agent will not confess any Claim or make any compromise in 9 any case in which the Fund will be asked to provide indemnification, except with the Fund's prior written consent. The obligations of the parties hereto under this Article shall survive the termination of this Agreement, so long as the Transfer Agent and the Fund act in good faith and are not negligent in their actions. Article 14 Standard of Care 14.1 The Transfer Agent shall at all times act in good faith and agrees to use its best efforts within commercially reasonable limits to ensure the accuracy of all services performed under this Agreement, but assumes no responsibility for loss or damage to the Funds unless said errors are caused by the Transfer Agent's own negligence, bad faith or willful misconduct or that of its employees. Article 15 Consequential Damages 15.1 In no event and under no circumstances shall either a Fund or the Transfer Agent be liable to another party for consequential or indirect loss of profits, reputation or business or any other special damages under any provision of this Agreement or for any act or failure to act hereunder. Article 16 Term and Termination 16.1 This Agreement shall be effective on the date first written above and shall continue for a period of sixty (60) months (the "Initial Term"), unless earlier terminated pursuant to the terms of this Agreement. Thereafter, this Agreement shall automatically be renewed for successive terms of twenty-four (24) months ("Renewal Terms") each, unless terminated pursuant to this Agreement. 16.2 The Funds or the Transfer Agent may terminate this Agreement at the end of the Initial Term or at the end of any subsequent Renewal Term upon not less than nine (9) months prior written notice to the other parties. 16.3 Upon a minimum of nine (9) months prior written notice from the Boards of Directors of the Funds, the Funds may terminate this Agreement at the end of the thirty-sixth (36th) or forty-eighth (48th) month of the Initial Term. 16.4 The Funds shall have the right to terminate this Agreement immediately upon the insolvency or bankruptcy of the Transfer Agent or the appointment of a receiver for the Transfer Agent, or with respect to any of its assets, or any change in the financial condition of the Transfer Agent which impedes the ability of the Transfer Agent to perform any of its obligations hereunder which is not cured by the Transfer Agent within thirty (30) days of such occurrence. The Funds shall have the right to seek to renegotiate this Agreement and, if such negotiations are not successful within a reasonable period of time, not to exceed ninety (90) days, to terminate this Agreement upon the transfer of ownership of a controlling interest in the Transfer Agent by or to any person other than a person who was an affiliate of the Transfer Agent or its parent company immediately before the transfer. 10 16.5 In the event that the total number of combined Shareholder accounts for the Funds and any other open-end investment companies affiliated with the Funds by reason of having a common investment adviser exceeds three times the 1994 Shareholder account base of 130,000 due to merger or acquisition activity involving the investment adviser or any affiliates of the adviser, the Funds shall have the right to terminate this Agreement upon nine (9) months prior written notice to the Transfer Agent. As used in this Article 16, "affiliates of the adviser" shall mean (i) a direct or indirect owner of 50% or more of the outstanding common stock of the adviser (a "parent") or (ii) any company or association whose outstanding common stock is at least 50% owned, directly or indirectly, by the adviser or by a parent. 16.6 In the event this Agreement is terminated by the Funds pursuant to Section 5.4, all expenses associated with the movement of records and materials to a successor transfer agent will be borne by the Transfer Agent. In the event of a termination pursuant to any other sections, all expenses associated with conversion will be borne by the Funds. The Transfer Agent shall cooperate with any such conversion to a successor transfer agent and shall use its best efforts to mitigate the costs associated with such transfer. 16.7 If a party hereto is guilty of a material failure to perform its duties and obligations hereunder (a "Defaulting Party") the other party (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, and if such material breach shall not have been remedied within thirty (30) days after such written notice is given, then the Non-Defaulting Party may terminate this Agreement by giving thirty (30) days written notice of such termination to the Defaulting Party. If the Transfer Agent is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any other rights or remedies of the Transfer Agent with respect to services performed prior to such termination or rights of the Transfer Agent to be reimbursed for out-of-pocket expenses incurred prior to such termination. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against the Defaulting Party. The Defaulting Party shall not be released from any liability with respect to such services performed prior to such termination. 16.8 In the event of termination of this Agreement by the Funds pursuant to Sections 16.3 or 16.5: (a) Prior to the effective date of the termination, the Funds shall reimburse the Transfer Agent for all unamortized costs incurred by the Transfer Agent in establishing the Charlotte Facility. (b) Prior to the effective date of the termination, the Funds shall assume any and all obligations that the Transfer Agent may have to third parties arising out of or in connection with the Transfer Agent's operations at the Charlotte Facility and that the Transfer Agent is not able to terminate prior to the effective date of the termination of this Agreement. 11 (c) Prior to the effective date of the termination, the Funds shall pay the Transfer Agent an amount equal to 80% of the cumulative Margin (as defined in Section 8.1) paid by the Funds to the Transfer Agent for the twelve months preceding the notice of termination, unless the Funds' investment adviser or any affiliate of the adviser has acquired an entity providing comparable transfer agency services to those provided under this Agreement. (d) The Funds shall reimburse the Transfer Agent for all reasonable expenses (other than accrued vacation, sick or other leave) incurred by the Transfer Agent in connection with the termination of the Transfer Agent's employees located at the Charlotte Facility, or, at the option of the Funds, the transfer of such employees to another entity providing services to the Funds. The Transfer Agent shall be obligated to seek to minimize any such expenses to the extent commercially practicable. (e) The Transfer Agent shall transfer to the Funds all physical assets located at the Charlotte Facility. Article 17 Additional Portfolios and Funds 17.1 In the event that a Fund establishes one or more Portfolios in addition to those identified initially on Schedule G, with respect to which the Fund desires to have the Transfer Agent render services as transfer agent under the terms hereof, the Fund shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees in writing to provide such services (such agreement not to be withheld unreasonably), Schedule G shall be amended to include such additional Portfolios. 17.2 Subsequent to the effective date of this Agreement, one or more registered investment companies (a "New Fund") for which NationsBank or any of its affiliates acts as investment adviser may become a party to this Agreement upon execution of a written adoption agreement by such New Fund pursuant to which such New Fund agrees to be bound by the terms of this Agreement (an "Adoption Agreement"). Following the execution of an Adoption Agreement by a New Fund, such New Fund shall be deemed a Fund for all purposes of this Agreement and shall have all the rights, obligations and duties of a Fund under this Agreement. Article 18 Confidentiality 18.1 In connection with the services provided by the Transfer Agent hereunder, certain confidential and proprietary information regarding the Transfer Agent and the Fund may be disclosed to the other. In connection therewith, the parties agree as follows: (a) "Confidential Information" shall mean: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finance, operations, customer relationships, customer profiles, 12 sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Transfer Agent or the Fund, their respective parent corporation, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of the foregoing; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Transfer Agent or the Fund a competitive advantage over its competitors; and (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, show-how and trade secrets, whether or not patentable or copyrightable. (b) Confidential Information includes, without limitation, all documents, inventions, substances, engineering and laboratory notebooks, drawings, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation of the foregoing which now exist or come into the control or possession of the party. 18.2 Except as expressly authorized by prior written consent of the disclosing party ("Discloser"), the party receiving Confidential Information ("Recipient") shall: (a) limit access to Discloser's Confidential Information to Recipient's employees and agent who have a need-to-know in connection with the subject matter thereof; (b) advise those employees and agents who have access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Confidential Agreement; (c) take appropriate action by instruction or agreement with the employees and agents having access to Discloser's Confidential Information to fulfill Recipient's obligations under this Confidentiality Agreement; (d) safeguard all of Discloser's Confidential Information by using a reasonable degree of care, but not less than that degree of care used by Recipient in safeguarding its own similar confidential information or material; (e) use all of Discloser's Confidential Information solely for purposes for which the Confidential Information was conveyed; and (f) not disclose any of Discloser's Confidential Information, or information derived therefrom, to third parties. 13 18.3 Upon Discloser's request, Recipient shall surrender to Discloser all memoranda, notes, records, drawings, manuals, and other documents or materials (and all copies of same) relating to or containing Discloser's Confidential Information. When Recipient returns the materials, Recipient shall certify in writing that it has returned all materials containing or relating to the Confidential Information. 18.4 The obligations of confidentiality and restriction on use in this Article 18 shall not apply to any Confidential Information that Recipient proves: (a) Was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Recipient; or (b) Was received by Recipient from a third party without Recipient's knowledge that the third party was not legally entitled to disclose such information; or (c) Was already in Recipient's possession prior to receipt from Discloser; or (d) Is required to be disclosed in a judicial or administrative proceeding after reasonable legal remedies for maintaining such information in confidence have been exhausted including, but not limited to, giving Discloser as much advance notice as practical of the possibility of disclosure to allow Discloser to take appropriate legal action to seek to prevent such disclosure; or (e) Is subsequently and independently developed by Recipient's employees, consultants or agents without reference to Confidential Information. 18.5 The Funds and the Transfer Agent agree that money damages would not be a sufficient remedy to an injured party for breach of this Article 18. Accordingly, in addition to all other remedies that a party may have, a party shall be entitled to specific performance and injunctive or other equitable relief against another party as a remedy for any breach of the obligations set forth in this Article 18. The parties agree to waive any requirement for a bond in connection with any such injunctive or other equitable relief. 18.6 The rights and obligations established by this Article 18 shall survive the termination of this Agreement. Article 19 Force Majeure 19.1 In the event a party is unable to perform its obligations under the terms of this Agreement because of acts of God or by reason of circumstances beyond its control, including war, national emergencies, strikes, labor difficulties, insurrection, riots or the failure or unavailability of transportation or communication services or power supplies, such party shall not be liable for damages incurred by any other party resulting from such failure to perform. The above in no way relieves the Transfer Agent or the Funds of responsibility for exercising all backup and contingency plans available and in effect at 14 such time and does not affect any other remedies that a party may have under this Agreement. Article 20 Amendments 20.1 This Agreement may only be amended or modified by a written instrument executed by all parties except that Schedule A may be amended in the manner set forth in Section 17.1. Article 21 Subcontracting 21.1 Each Fund agrees that the Transfer Agent, in its discretion, may after notification to the Funds, subcontract for certain of the services to be provided by the Transfer Agent under this Agreement or the Schedules hereto; provided that the appointment of any such subcontractor shall not relieve the Transfer Agent of its responsibilities hereunder. Article 22 Arbitration 22.1 Any claim or controversy arising out of or relating to this Agreement, or breach hereof, shall be settled by arbitration administered by the American Arbitration Association in Charlotte, North Carolina in accordance with its applicable rules, except that the Federal Rules of Evidence and the Federal Rules of Civil Procedure with respect to the discovery process shall apply. 22.2 The parties hereby agree that judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 22.3 The parties acknowledge and agree that the performance of the obligations under this Agreement necessitates the use of instrumentalities of interstate commerce and, notwithstanding other general choice of law provisions in this Agreement, the parties agree that the Federal Arbitration Act shall govern and control with respect to the provisions of this Article 22. Article 23 Notice 23.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to a party, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as such party may from time to time designate in writing. To either of the Funds: [Name of Applicable Fund] 111 Center Street Little Rock, Arkansas 72201 Attention: Corporate Secretary 15 To the Transfer Agent: The Shareholder Services Group One Exchange Place 53 State Street Boston, Massachusetts 02109 Attention: President with a copy to: General Counsel (same address) Article 24 Successors 24.1 This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns, provided, however, that this Agreement shall not be assigned to any person other than a person controlling, controlled by or under common control with the assignor without the written consent of the other party, which consent shall not be unreasonably withheld. Article 25 Governing Law 25.1 This Agreement shall be governed exclusively by the laws of the Commonwealth of Massachusetts without reference to the choice of law provisions thereof. Subject to Article 22 hereof, each party hereto hereby (i) consents to the personal jurisdiction of the Commonwealth of Massachusetts courts over the parties hereto, hereby waiving any defense of lack of personal jurisdiction; and (ii) appoints the person to whom notices hereunder are to be sent as agent for service of process. Article 26 Counterparts 26.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. Article 27 Captions 27.1 The captions of this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. Article 28 Use of Transfer Agent/Fund Name 28.1 The Funds shall not use the name of the Transfer Agent in any Prospectus, Statement of Additional Information, Shareholders' report, sales literature or other material relating to the Fund in a manner not approved prior thereto in writing by the Transfer Agent; provided, that the Transfer Agent need only receive notice of all reasonable uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by any government agency or applicable law or rule. 16 28.2 The Transfer Agent shall not use the name of a Fund or material relating to a Fund on any documents or forms for other than internal use in a manner not approved prior thereto in writing by such Fund; provided, that the Fund need only receive notice of all reasonable uses of its name which merely refer in accurate terms to the appointment of the Transfer Agent as transfer agent for the Fund or which are required by any government agency or applicable law or rule. Article 29 Relationship of Parties 29.1 The parties agree that they are independent contractors and not partners or co-venturers and nothing contained herein shall be interpreted or construed otherwise. 29.2 The parties hereby acknowledge and agree that each Fund has entered into this Agreement independently on behalf of itself and its Portfolios which are now or may hereafter be identified on Schedule G. Notwithstanding anything to the contrary contained in this Agreement, (i) each Fund individually shall have the rights and obligations of a Fund as set forth in this Agreement, (ii) any action by a Fund in violation of this Agreement shall not affect the rights and obligations of any other Fund under this Agreement, and (iii) the Transfer agent, in seeking to enforce any provisions of this Agreement with respect to a Portfolio, shall look solely to the assets and revenues of such Portfolio and that in no event shall the Transfer Agent in seeking to enforce such obligation have recourse to the independent assets or revenues of any other Portfolio. Article 30 Entire Agreement; Severability 30.1 This Agreement and the Schedules attached hereto constitute the entire agreement of the parties hereto relating to the matters covered hereby and supersede any previous agreements. If any provision is held to be illegal, unenforceable or invalid for any reason, the remaining provisions shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written. NATIONS FUND, INC. By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- NATIONS FUND TRUST By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- 17 THE CAPITOL MUTUAL FUNDS By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- NATIONS FUND PORTFOLIOS, INC. By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- THE SHAREHOLDER SERVICES GROUP, INC. By: /s/ (Illegible) ------------------------------ Title: (Illegible) --------------------------- 18 Schedule A DUTIES OF THE TRANSFER AGENT 1. Shareholder Information. The Transfer Agent shall maintain a record of the number of Shares held by each Shareholder of record which shall include full registration information, including, but not limited to, name, address and taxpayer identification number and which shall indicate whether such Shares are held in certificated or uncertificated form. 2. Shareholder Services. The Transfer Agent shall respond as appropriate to all inquiries and communications from Shareholders relating to Shareholder accounts with respect to its duties hereunder and as may be from time to time mutually agreed upon between the Transfer Agent and the Funds. 3. Share Certificates. (a) At the expense of the appropriate Fund, each Fund shall supply the Transfer Agent with adequate supply of blank share certificates to meet the Transfer Agent's requirements therefor. Such Share certificates shall be properly signed by facsimile. Each Fund agrees that, notwithstanding the death, resignation, or removal of any officer of the Fund whose signature appears on such certificates, the Transfer Agent or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions. (b) The Transfer Agent shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by the Transfer Agent of properly executed affidavits and lost certificate bonds, in form satisfactory to the Transfer Agent, with the appropriate Fund and the Transfer Agent as obligees under the bond. (c) The Transfer Agent shall also maintain a record of each certificate issued, the number of Shares represented thereby and the Shareholder of record. With respect to Shares held in open accounts or in uncertificated form (i.e., no certificate being issued with respect thereto) the Transfer Agent shall maintain comparable records of the Shareholders thereof, including their names, addresses and taxpayer identification number. The Transfer Agent shall further maintain a stop transfer record on lost and/or replaced certificates. 4. Mailing Communications to Shareholders; Proxy Materials. The Transfer Agent will address and mail to Shareholders of the Funds, all reports to Shareholders, dividend and distribution notices and proxy material for the Funds' meetings of Shareholders. In connection with meetings of Shareholders, the Transfer Agent will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings. 1 5. Sales of Shares (a) The Transfer Agent shall not be required to issue any Shares of a Fund where it has received a Written Instruction from the Fund or official notice from any appropriate authority that the sale of the Shares of the Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of the Transfer Agent to rely on such Written Instructions or official notice. (b) In the event that any check or other order for the payment of money is returned unpaid for any reason, the Transfer Agent will endeavor to: (i) give prompt notice of such return to the Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as the Transfer Agent may from time to time deem appropriate. 6. Transfer and Repurchase (a) The Transfer Agent shall process all requests to transfer or redeem Shares in accordance with the transfer or repurchase procedures set forth in the Funds' Prospectus. (b) The Transfer Agent will transfer or repurchase Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer or redemption, accompanied by such documents as the Transfer Agent reasonably may deem necessary. (c) The Transfer Agent reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the endorsement on the instructions is valid and genuine. The Transfer Agent also reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the requested transfer or repurchase is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or repurchases which the Transfer Agent, in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or repurchase. (d) When Shares are redeemed, the Transfer Agent shall, upon receipt of the instructions and documents in proper form, deliver to the Custodian and the appropriate Fund or its designee a notification setting forth the number of Shares to be redeemed. Such redeemed Shares shall be reflected on appropriate accounts maintained by the Transfer Agent reflecting outstanding Shares of the Fund and Shares attributed to individual accounts. (e) The Transfer Agent, upon receipt of the monies paid to it by the Custodian for the redemption of Shares, pay such monies as are received from the Custodian, all in accordance with the procedures described in the Written Instructions received by the Transfer Agent from the Funds. 2 (f) The Transfer Agent shall not process or effect any repurchase with respect to Shares of the Fund after receipt by the Transfer Agent or its agent of notification of the suspension of the determination of the net asset value of the Fund. 7. Dividends (a) Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of a Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be furnished to the Transfer Agent Written Instructions setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the Shareholders of record as of that date, the total amount payable to the Transfer Agent on the payment date and whether such dividend or distribution is to be paid in Shares at net asset value. (b) On or before the payment date specified in such resolution of the Board of Directors, the Fund will pay to the Transfer Agent sufficient cash to make payment on such payment date to the Shareholders of record on the record date. (c) If, prior to the payment date, the Transfer Agent does not receive sufficient cash from the Fund to make total dividend and/or distribution payments to all Shareholders of the Fund of the record date, the Transfer Agent will, upon notifying the Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to the Transfer Agent. 8. In addition to and neither in lieu nor in contravention of the services set forth above, the Transfer Agent shall: (i) perform all the customary services of a transfer agent, registrar, dividend disbursing agent and agent of the dividend reinvestment and cash purchase plan as described herein consistent with those requirements in effect as at the date of this Agreement. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders. 3 Schedule B Quality Standards (Effective October 2, 1995 as updated on September 25, 1995) For all funds, open-end and closed-end, serviced by TSSG, under the Transfer Agency and Services Agreement (with Facilities Management Arrangement) dated June 1, 1995, the following quality standards shall apply. This schedule shall replace the temporary quality standard Schedule B in the original agreement as referenced in Section 5.2. Financials: Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials: Maintenances 98% Transfers 98% Correspondence 98% Adjustments 98% Telephone Calls 98% New Accounts: New Account Set-ups 98% - -------------------------------------------------------------------------------- Performance Standards - -------------------------------------------------------------------------------- Telephone Performance Standards ================================================================================ Average speed of answer 20 seconds or less - -------------------------------------------------------------------------------- Calls abandoned 2% of calls that wait 20 second or more - -------------------------------------------------------------------------------- Service level* 80% - -------------------------------------------------------------------------------- Article 1 ___________________________ * Represents the percentage of calls answered within 20 seconds. Schedule B [List of Initial Quality Standards based on 1994 quarterly senior management reports] Nations Fund Financial Transactions Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Maintenance 98% Transfers 98% New Accounts 98% % = minimum acceptable levels Closed End Funds Financials 98% Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Certificate Processing 98% Maintenance 98% Transfers 98% New Accounts 98% % = minimum acceptable levels Capitol Funds Financials Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Maintenance 98% Transfers 98% 1 New Accounts 98% % = minimum acceptable levels 2 Schedule C Schedule of Costs 1. For purposes of this Agreement, "Costs" shall mean all internal and external costs incurred by the Transfer Agent in connection with and properly allocated to the Services provided under the Agreement, including, but not limited to, the costs involved with the operation of the Charlotte Facility, those costs reasonably incurred by the Transfer Agent to achieve the quality standards imposed on it under the terms of this Agreement and the Transfer Agent's overhead, depreciation and amortization costs, excepting out-of-pocket expenses and such other costs agreed to in writing by the Transfer Agent and the Funds. 2. The Funds shall have the right to audit, at their own expense, the books and records of the Transfer Agent with respect to the Costs for which the Transfer Agent seeks reimbursement under Article 8 on an annual basis, or more frequently if the Funds have a reasonable basis to dispute any cost for which the Transfer Agent seeks reimbursement. 3. The Transfer Agent shall use its best efforts to minimize the costs incurred by it in connection with the provisions of services under this Agreement to the extent such action is commercially reasonable and consistent with the quality standards imposed under this Agreement. Schedule D Non-Margin Expenses - Facilities related expenses as incurred by the Transfer Agent under the Facilities Management Agreement between the Transfer Agent and NationsBank - Out-of-Pocket expenses - Sub-Transfer Agent Fees and Expenses - Any other expenses agreed to in writing by the Transfer Agent and the Funds Schedule E OUT-OF-POCKET EXPENSES The Funds shall reimburse the Transfer Agent monthly for reasonable out-of-pocket expenses incurred in connection with the provision of Services under this Agreement, including, but not limited to the following items: - Microfiche/microfilm production - Magnetic media tapes and freight - Printing costs, including certificates, envelopes, checks and stationery - Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass through to the Funds - Due diligence mailings - Telephone and telecommunication costs, including all lease, maintenance and line costs (excluding such telephone and telecommunications costs provided by NationsBank pursuant to the Facilities Agreement) - Ad hoc reports - Proxy solicitations, mailings and tabulations - Daily & Distribution advice mailings (including all periodic statements) - Shipping, Certified and Overnight mail and insurance - Year-end form production and mailings - Terminals, communication lines, printers and other equipment and any expenses incurred in connection with such terminals and lines - Duplicating services - Courier services - Incoming and outgoing wire charges - Federal Reserve charges for check clearance - Overtime, as approved by the Funds - Temporary staff, as approved by the Funds - Travel and entertainment, as approved by the Funds - Record retention, retrieval and destruction costs, including, but not limited to exit fees charged by third party record keeping vendors - Third party audit reviews - All conversion costs: including System start up costs - Insurance - Such other miscellaneous expenses reasonably incurred by the Transfer Agent in performing its duties and responsibilities under this Agreement. - Systems Programming utilizing non-dedicated systems resources at $100 per hour The Funds agree that postage and mailing expenses will be paid on the day of or prior to mailing as agreed with the Transfer Agent. In addition, the Funds will promptly reimburse the Transfer Agent for any other unscheduled expenses incurred by the Transfer Agent whenever the Funds and the Transfer Agent mutually agree that such 1 expenses are not otherwise properly borne by the Transfer Agent as part of its duties and obligations under the Agreement. 2 Schedule F Fund Documents - - Certified copy of the Articles of Incorporation of the Fund, as amended - - - Certified copy of the By-laws of the Fund, as amended - - Copy of the resolution of the Board of Directors authorizing the execution and delivery of this Agreement - - Specimens of the certificates for Shares of the Fund, if applicable, in the form approved by the Board of Directors of the Fund, with a certificate of the Secretary of the Fund as to such approval - - All account application forms and other documents relating to Shareholder accounts or to any plan, program or service offered by the Fund - - Certified list of Shareholders of the Fund with the name, address and taxpayer identification number of each Shareholder, and the number of Shares of the Fund held by each, certificate numbers and denominations (if any certificates have been issued), lists of any accounts against which stop transfer orders have been placed, together with the reasons therefore, and the number of Shares redeemed by the Fund. - - All notices issued by the Fund with respect to the Shares in accordance with and pursuant to the Articles of Incorporation or By-laws of the Fund or as required by law and shall perform such other specific duties as are set forth in the Articles of Incorporation including the giving of notice of any special or annual meetings of shareholders and any other notices required thereby. SCHEDULE G FUND PORTFOLIOS Nations Funds Trust: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 1 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund 58. Nations California Intermediate Municipal Bond Fund 59. Corporate Bond Portfolio 60. Mortgage- and Asset-Backed Portfolio 61. High Income Portfolio 62. Nations SmallCap Core Fund Nations Separate Account Trust(formerly Nations Annuity Trust): 1. Nations Value Portfolio 2. Nations Marsico International Opportunities Portfolio 3. Nations Marsico 21st Century Portfolio 4. Nations Marsico Focused Equities Portfolio 5. Nations Marsico Growth Portfolio 6. Nations Capital Growth Portfolio 7. Nations Small Company Portfolio 8. Nations Asset Allocation Portfolio 9. Nations High Yield Bond Portfolio 10. Nations International Value Portfolio 11. Nations MidCap Growth Portfolio Closed End Funds 1. Nations Balanced Target Maturity Fund 2. Nations Government Income Term Trust 2003, Inc. 3. Nations Government Income Term Trust 2004, Inc. Last Amended: August 28, 2002 2 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule G to be executed by their officers designated below as of the 28th day of August, 2002. PFPC Inc. (indirect successor to The Shareholder Services Group, Inc.) By: /s/ Mark Hoefel --------------- Mark Hoefel NATIONS SEPARATE ACCOUNT TRUST (formerly Nations Annuity Trust) By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS FUNDS TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS BALANCED TARGET MATURITY FUND, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary 3 NATIONS GOVERNMENT INCOME TERM TRUST 2003, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary 4 EX-99.23(H)(17) 15 dex9923h17.txt SUB-TRANSFER AGENCY & SERVICING AGREEMENT Exhibit 99.23(h)(17) SUB-TRANSFER AGENCY AND SERVICES AGREEMENT THIS AGREEMENT, dated as of this 11th day of September, 1995, is by and between THE SHAREHOLDER SERVICES GROUP, INC. ("TSSG", also referred to as the "Transfer Agent"), a Massachusetts corporation and principal offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109 and NATIONSBANK OF TEXAS, N.A. ("NationsBank"), organized under the laws of Texas and having its principal place of business at 1401 Elm Street, 11th Floor, Dallas, TX 75202. WITNESSETH WHEREAS, TSSG has been appointed transfer agent for those open-end registered investment companies identified on the attached Schedule A (individually the "Fund" and collectively the "Funds") pursuant to the terms of the Transfer Agency and Services Agreement (the "Transfer Agent Agreement(s)") with each such Fund; WHEREAS, the Funds are authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets ("Portfolio"). Each such Portfolio shall also be identified on Schedule A; WHEREAS, each Portfolio is authorized to issue multiple classes of shares including Trust A Shares and, in many cases, Trust B Shares (the "Trust Shares"); and WHEREAS, the Funds have authorized TSSG to subcontract with and appoint NationsBank as its agent to perform certain administrative and ministerial duties and obligations that the Transfer Agent has to the Funds with respect to the Trust Shares and NationsBank desires to accept such appointment; NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, TSSG and NationsBank agree as follows: Article 1 Definitions 1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Articles of Incorporation" shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of the Funds as the same may be amended from time to time; (b) "Authorized Person" shall be deemed to include (i) any authorized Officer of the Fund; or (ii) any person, whether or not such person is an Officer or employee of the Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to the Transfer Agent from time to time; (c) "Board of Directors" shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be; (d) "Commission" shall mean the Securities and Exchange Commission; (e) "Custodian" refers to any custodian or subcustodian of securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement; (f) "1940 Act" shall mean the Investment Company Act of 1940, and the rules and regulations promulgated thereunder, all as amended from time to time; (g) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by NationsBank from a person reasonably believed by NationsBank to be an Authorized Person; (h) "Prospectus" shall mean the most recently dated Fund Prospectuses and Statements of Additional Information, including supplements thereto if any, which have become effective under the Securities Act of 1933 and the 1940 Act; (i) "Shares" refers collectively to such Trust Shares of the Portfolios as may be issued from time to time; (j) "Shareholder" shall mean a record owner of Shares; and (k) "Written Instructions" shall mean a written communication signed by a person reasonably believed by NationsBank to be an Authorized Person and actually received by the Transfer Agent. Written Instructions shall include manually executed originals and authorized electronic transmissions, including telefacsimile of a manually executed original or other process. Article 2 Appointment of NationsBank 2.1 TSSG hereby appoints NationsBank as its subcontractor and agent to perform certain administrative and ministerial duties on behalf of the Funds, and NationsBank hereby accepts such appointment and agrees to perform the duties hereinafter set forth. Article 3 Duties of NationsBank 3.1 NationsBank shall be responsible for administering and/or performing the customary services of a transfer agent; for performing the customary services of a service agent in connection with dividend and distribution functions; and for performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares, as more fully described in the written Schedule of Duties of NationsBank annexed hereto as Schedule B and incorporated herein, and in accordance with the terms 2 of the Prospectus, applicable law and the procedures established from time to time between NationsBank and the Transfer Agent and/or the Funds. 3.2 Notwithstanding any of the foregoing provisions of this Agreement, NationsBank and the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (iii) the legality of the declaration of any dividend by the Board of Directors, or the legality of the issuance of any shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares. It being understood that such shall be the responsibility of the Funds. 3.3 In addition, the Funds shall verify the establishment of transactions in Shares for each state on the system prior to activation and thereafter monitor the daily activity for each state. The responsibility of NationsBank for the Funds' blue sky state registration status is solely limited to the initial establishment of transactions in Shares subject to blue sky compliance by the Funds and the reporting of such transactions to the Funds as provided above. Article 4 Recordkeeping and Other Information 4.1 NationsBank shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule B in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act. All records shall be available during regular business hours for inspection and use by the Transfer Agent and the Funds. Where applicable, such records shall be maintained by NationsBank for the periods and in the places required by Rule 31a-2 under the 1940 Act. 4.2 To the extent required by Section 31 of the 1940 Act, NationsBank agrees that all such records prepared or maintained by NationsBank relating to the services to be performed by NationsBank hereunder are the property of the Funds and will be preserved, maintained and made available in accordance with such section, and will be surrendered promptly to the Funds on and in accordance with the Funds' request. 4.3 In case of any requests or demands for the inspection of Shareholder records of the Funds, NationsBank will endeavor to notify the applicable Fund of such request and secure Written Instructions as to the handling of such request. NationsBank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to comply with such request. 4.4 Upon reasonable notice by the applicable Fund, NationsBank shall make available during regular business hours such of its facilities and premises employed in connection with the performance of its duties under this Agreement for reasonable visitation by such Fund, or any person retained by the Fund as may be necessary for the Fund to evaluate the quality of the services performed by NationsBank pursuant hereto. 3 Article 5 Fund Instructions 5.1 NationsBank will have no liability when acting upon Written or Oral Instructions believed to have been executed or orally communicated by an Authorized Person and will not be held to have any notice of any change of authority of any person until it receives Written Instruction thereof from the Fund. NationsBank will also have no liability when processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the Officers of the Fund and the proper countersignature of the Transfer Agent. 5.2 At any time, NationsBank may request Written Instructions from the Fund and may seek advice from legal counsel for the Funds, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Funds or for NationsBank. Written Instructions requested by NationsBank will be provided by the Fund within a reasonable period of time. 5.3 NationsBank, its Officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of a Fund only if said representative is an Authorized Person. The Fund agrees that all Oral Instructions shall be followed, within one business day, by confirming Written Instructions, and that the Fund's failure to so confirm shall not impair in any respect NationsBank's right to reply on Oral Instructions. Article 6 Compensation 6.1 Upon receipt of the appropriate payment from the Funds, the Transfer Agent will compensate NationsBank for the performance of its obligations hereunder in accordance with the fees set forth in the written Fee Schedule annexed hereto as Schedule C and incorporated herein. The Transfer Agent's responsibility under this Section 6.1 is conditioned upon receipt of such payment from the Funds. Article 7 Representations and Warranties of NationsBank 7.1 NationsBank represents and warrants to the Transfer Agent that: (a) it is a corporation duly organized and existing and in good standing under the laws of Texas; (b) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (c) all requisite corporate proceedings have been taken to authorize it to enter into this Agreement; 4 (d) it is duly registered with its appropriate regulatory agency as a transfer agent and such registration will remain in effect for the duration of this Agreement; (e) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 8 Representations and Warranties of the Transfer Agent 8.1 The Transfer Agent represents and warrants to NationsBank that: (a) it is duly organized and existing and in good standing under the laws of the jurisdiction in which it is organized; (b) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws and the Transfer Agent Agreement to enter into this Agreement; (c) all corporate proceedings required by said Articles of Incorporation, By-Laws and applicable laws have been taken to authorize it to enter into this Agreement. Article 9 Indemnification 9.1 To, and only to, the extent the Transfer Agent is indemnified by the Funds pursuant to the terms of the Transfer Agent Agreements, NationsBank shall not be responsible for and the Transfer Agent shall indemnify and hold NationsBank harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against NationsBank or for which NationsBank may be held to be liable (a "Claim") arising out of or attributable to any of the following: (a) Any actions of NationsBank required to be taken pursuant to this Agreement unless such Claim resulted from a negligent act or omission to act or bad faith by NationsBank in the performance of its duties hereunder. (b) NationsBank's reasonable reliance on, or reasonable use of information, data, records and documents (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) received by NationsBank from the Funds, or any authorized third party acting on behalf of the Funds, including but not limited to the Transfer Agent or any prior transfer agent for the Funds, in the performance of NationsBank's duties and obligations hereunder. (c) The reliance on, or the implementation of, any Written or Oral Instructions or any other instructions or requests which are provided by an Authorized Person of the Fund. 5 (d) The offer or sale of shares by the Fund in violation of any requirement under the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any state with the respect to the offer or sale of such Shares in such state. (e) The Transfer Agent's refusal or failure to comply with the terms of this Agreement, or any Claim which arises out of this Agreement, or any Claim which arises out of the Transfer Agent's negligence or misconduct or the breach of which any representation or warranty of the Transfer Agent made herein. 9.2 Notwithstanding the foregoing Section 9.1, the Transfer Agent shall be responsible for and indemnify and hold NationsBank harmless from and against any and all claims by third parties, including, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against NationsBank or for which NationsBank may be held to be liable arising out of or attributable to a negligent act or omission to act or bad faith by the Transfer Agent. 9.3 NationsBank shall indemnify and hold the Transfer Agent harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Transfer Agent or for which the Transfer Agent may be held to be liable arising out of or attributable to any negligent act or failure to act or bad faith or willful misconduct on the part of NationsBank in connection with the performance of its duties under this Agreement. 9.4 In any case in which either party (the "Indemnifying Party") may be asked to indemnify or hold the other (the "Indemnified Party") harmless, the Indemnified Party will notify the Indemnifying Party promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Indemnifying Party although the failure to do so shall not prevent recovery by the Indemnified Party and the Indemnified Party shall keep the Indemnifying Party advised with respect to all developments concerning such situation. The Indemnifying Party shall have the option to defend the Indemnified Party against any Claim which may be the subject of this indemnification, and, in the event that the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and satisfactory to the Indemnified Party, and thereupon the Indemnifying Party shall take over complete defense of the Claim and the Indemnified Party shall sustain no further legal or other expenses in respect of such Claim. The Indemnified Party will not confess any Claim or make any compromise in any case in which the Indemnifying Party will be asked to provide indemnification, except with the Indemnifying Party's prior written consent. 9.5 The obligations of the parties hereto under this Article 9 shall survive the termination of this Agreement. 6 Article 10 Standard of Care 10.1 NationsBank shall at all times, act in good faith and agrees to use its best efforts within commercially reasonable limits to ensure the accuracy of all services performed under this Agreement, but assumes no responsibility for loss or damage to the Transfer Agent unless said errors are caused by NationsBank's own negligence, bad faith or willful misconduct or that of its employees. Article 11 Consequential Damages 11.1 In no event and under no circumstances shall either party to this Agreement be liable to the other party for consequential or indirect loss of profits, reputation or business or any other special damages under any provision of this Agreement or for any act or failure to act hereunder. Article 12 Term and Termination 12.1 This Agreement shall be effective on the date first written above and shall continue for a period of five (5) years (the "Initial Term"), unless earlier terminated pursuant to the terms of this Agreement. Thereafter, this Agreement shall automatically be renewed for successive terms of three (3) years ("Renewal Terms") each. 12.2 Either party may terminate this Agreement at the end of the Initial Term or any subsequent Renewal Term upon not less than ninety (90) days, or more than one-hundred eighty (180) days, prior written notice to the other party. 12.3 In the event a termination notice is given by the Transfer Agent, all expenses associated with movement of records and materials and conversion thereof to the Transfer Agent or to a successor subcontractor, will be borne by the Transfer Agent. 12.4 If a party hereto is guilty of a material failure to perform its duties and obligations hereunder (a "Defaulting Party") the other party (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, and if such material breach shall not have been remedied within thirty (30) days after such written notice is given, then the Non-Defaulting Party may terminate this Agreement by giving thirty (30) days written notice of such termination to the Defaulting Party. If NationsBank is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any other rights or remedies of NationsBank with respect to services performed prior to such termination of rights of NationsBank to be reimbursed for out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against the Defaulting Party. 12.5 Notwithstanding any provision of this Article 12 to the contrary, this Agreement shall terminate simultaneously with any termination of the Transfer Agent Agreement. 7 Article 13 Confidentiality 13.1 In connection with the services provided by NationsBank hereunder, certain confidential and proprietary information regarding NationsBank and the Transfer Agent may be disclosed to the other. In connection therewith, the parties agree as follows: (a) Confidential Information disclosed under this Agreement shall mean: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finance, operations, customer relationships, customer profiles, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of NationsBank, the Transfer Agent or the Funds, their respective parent corporations, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of the foregoing; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords NationsBank, the Transfer Agent or the Funds a competitive advantage over its competitors; and (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, show-how and trade secrets, whether or not patentable or copyrightable. (b) Confidential Information also includes, without limitation, all documents, inventions, substances, engineering and laboratory notebooks, drawings, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation of the foregoing which now exist or come into the control or possession of the party. 13.2 Except as expressly authorized by prior written consent of the disclosing party ("Discloser"), the party receiving Confidential Information ("Recipient") shall: (a) limit access to Discloser's Confidential Information to Recipient's employees who have a need-to-know in connection with the subject matter thereof; (b) advise those employees who have access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Confidentiality Agreement; 8 (c) take appropriate action by instruction or agreement with the employees having access to Discloser's Confidential Information to fulfill Recipient's obligations under this Confidentiality Agreement; (d) safeguard all of Discloser's Confidential Information by using a reasonable degree of care, but not less than that degree of care used by Recipient in safeguarding its own similar information or material; (e) use all of Discloser's Confidential Information solely for purposes that it was intended; (f) not disclose any of Discloser's Confidential Information to third parties. 13.3 Upon Discloser's request, Recipient shall surrender to Discloser all memoranda, notes, records, drawings, manuals, records, and other documents or materials (and all copies of same) relating to or containing Discloser's Confidential Information. When Recipient returns the materials, Recipient shall certify in writing that it has returned all materials containing or relating to the Confidential Information. 13.4 The obligations of confidentiality and restriction on use in this Article 13 shall not apply to any Confidential Information that Recipient proves: (a) Was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Recipient; (b) Was lawfully received by Recipient from a third party free of any obligation of confidence to the third party; (c) Was already in Recipient's possession prior to receipt from Discloser; (d) Is required to be disclosed in a judicial or administrative proceeding after all reasonable legal remedies for maintaining such information in confidence have been exhausted including, but not limited to, giving Discloser as much advance notice as practical of the possibility of disclosure to allow Discloser to stop such disclosure or obtain a protective order concerning such disclosure; or (e) Is subsequently and independently developed by Recipient's employees, consultants or agents without reference to Confidential Information. 13.5 NationsBank and the Transfer Agent agree that money damages would not be a sufficient remedy for breach of this Article 13. Accordingly, in addition to all other remedies that either party may have, a party shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any breach of this Agreement. The parties agree to waive any requirement for a bond in connection with any such injunctive or other equitable relief. 9 Article 14 Force Majeure 14.1 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, labor difficulties, mechanical breakdowns, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Article 15 Amendments 15.1 This Agreement may only be amended or modified by a written instrument executed by both parties. Article 16 Subcontracting 16.1 The Transfer Agent agrees that NationsBank may, in its discretion, subcontract for certain of the services described under this Agreement or the Schedules hereto; provided that the appointment of any such subcontractor shall not relieve NationsBank of its responsibilities hereunder. Article 17 Arbitration 17.1 Any Claim or controversy arising out of or relating to this Agreement, or breach hereof, shall be settled by arbitration administered by the American Arbitration Association in Boston, Massachusetts in accordance with its applicable rules, except that the Federal Rules of Evidence and the Federal Rules of Civil Procedure with respect to the discovery process shall apply. 17.2 The parties hereby agree that judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 17.3 The parties acknowledge and agree that the performance of the obligations under this Agreement necessitates the use of instrumentalities of interstate commerce and, notwithstanding other general choice of law provisions in this Agreement, the parties agree that the Federal Arbitration Act shall govern and control with respect to the provisions of this Article 17. Article 18 Notice 18.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to NationsBank or the Transfer Agent, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Transfer Agent: 10 The Shareholder Services Group, Inc. One Exchange Place 53 State Street Boston, Massachusetts 02109 Attention: President with a copy to TSSG's General Counsel To: NationsBank NationsBank NationsBank Plaza 101 S. Tryon Street, NC1-002-33-31 Charlotte, North Carolina 28255 Attention: Ted Johnson Article 19 Successors 19.1 This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns, provided, however, that this Agreement shall not be assigned to any person other than a person controlling, controlled by or under common control with the assignor without the written consent of the other party, which consent shall not be unreasonably withheld. Article 20 Governing Law 20.1 This Agreement shall be governed exclusively by the laws of the Commonwealth of Massachusetts without reference to the choice of law provisions thereof. Subject to Article 17, each party to this Agreement hereby (i) consents to the personal jurisdiction of the Commonwealth of Massachusetts courts over the parties hereto, hereby waiving any defense of lack of personal jurisdiction; and (ii) appoints the person to whom notices hereunder are to be sent as agent for service of process. Article 21 Counterparts 21.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. Article 22 Captions 22.1 The captions included in this Agreement are for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. 11 Article 23 Relationship of Parties 23.1 The parties agree that they are independent contractors and not partners or co-venturers and nothing contained herein shall be interpreted or construed otherwise. Article 24 Entire Agreement; Severability 24.1 This Agreement and the Schedules attached hereto constitute the entire agreement of the parties hereto relating to the matters covered hereby and supersede any previous agreements. If any provision is held to be illegal, unenforceable or invalid for any reason, the remaining provisions shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year written above. THE SHAREHOLDER SERVICES GROUP, INC. By: /s/ Jack P. Kurt ---------------------------------- Title: Executive Vice President and Chief ---------------------------------- Operating Officer ----------------- NATIONSBANK OF TEXAS, N.A. By: /s/ Mark H. Williamson ---------------------------------- Title: Senior Vice President ---------------------------------- 12 SCHEDULE A FUND PORTFOLIOS Nations Funds Trust 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Convertible Securities Fund 27. Nations California Municipal Bond Fund 28. Nations Intermediate Bond Fund 29. Nations International Equity Fund 30. Nations International Value Fund 31. Nations Emerging Markets Fund 32. Nations High Yield Bond Fund 33. Nations MidCap Index Fund 34. Nations Kansas Municipal Income Fund 35. Nations Marsico 21st Century Fund 36. Nations Marsico International Opportunities Fund 37. Nations Financial Services Fund 38. Nations Classic Value Fund 39. Nations Global Value Fund 40. Nations Asset Allocation Fund 41. Nations Government Securities Fund 42. Nations Marsico Focused Equities Fund 13 43. Nations Marsico Growth Fund 44. Nations LifeGoal Growth Portfolio 45. Nations LifeGoal Balanced Growth Portfolio 46. Nations LifeGoal Income and Growth Portfolio 47. Nations MidCap Value Fund 48. Nations LargeCap Value Fund 49. Nations Research Fund 50. Nations SmallCap Value Fund 51. Nations California Intermediate Municipal Bond Fund 52. Corporate Bond Portfolio 53. Mortgage- and Asset-Backed Portfolio 54. High Income Portfolio 55. Nations SmallCap Core Fund Last Amended: August 28, 2002 14 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule A to be executed by their officers designated below as of the 28th day of August, 2002. PFPC Inc. (indirect successor to The Shareholder Services Group, Inc.) By: /s/ Mark Hoefel --------------- Mark Hoefel BANK OF AMERICA, N.A. (indirect successor to NationsBank of Texas, N.A.) By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President 15 Schedule B DUTIES OF NATIONSBANK 1. Shareholder Information. NationsBank shall maintain a record of the number of Shares held by each Shareholder of record which shall include name, address, and taxpayer identification number and which shall indicate whether such Shares are held in certificates or uncertificated form. 2. Shareholder Services. NationsBank shall respond as appropriate to all inquiries and communications from Shareholders relating to Shareholder accounts with respect to its duties hereunder and as may be from time to time mutually agreed upon between NationsBank and the Transfer Agent (or the Funds as the case maybe). 3. Share Certificates. (a) At the expense of the Funds, the Funds shall supply NationsBank with an adequate supply of blank share certificates to meet NationsBank's requirements therefor. Such Share certificates shall be properly signed by facsimile. Notwithstanding the death, resignation, or removal of any Officer of the Fund whose signature appears on such certificates, NationsBank or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions. (b) NationsBank shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by NationsBank of properly executed affidavits and lost certificate bonds, in form satisfactory to NationsBank, with the applicable Fund and NationsBank as obligees under the bond. (c) NationsBank shall also maintain a record of each certificate issued, the number of Shares represented thereby and the Shareholder of record. With respect to Shares held in open accounts or uncertificated form (i.e., no certificate being issued with respect thereto) the Transfer Agent shall maintain comparable records of the Shareholders thereof, including their names, addresses and taxpayer identification numbers. NationsBank shall further maintain a stop transfer record on lost and/or replaced certificates. 4. Mailing Communications to Shareholders; Proxy Materials. NationsBank will address and mail to Shareholders of the Funds, all reports to Shareholders, dividend and distribution notices and proxy material for the Funds' meetings of Shareholders. In connection with meetings of Shareholders, NationsBank will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings. 5. Sales of Shares. (a) NationsBank shall not be required to issue any Shares of the Funds where it has received a Written Instruction from the applicable Fund or official notice from any appropriate authority that the sale of the Shares of such Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of NationsBank to rely on such Written Instructions or official notice. (b) In the event that any check or other order for the payment of money is returned unpaid for any reason, NationsBank will endeavor to: (i) give prompt notice of such return to the applicable Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as NationsBank may from time to time deem appropriate. 6. Transfer and Repurchase. (a) NationsBank shall process all requests to transfer or redeem Shares in accordance with the transfer or repurchase procedures set forth in the applicable Fund's Prospectus. (b) NationsBank will transfer or repurchase Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer or redemption, accompanied by such documents as NationsBank reasonably may deem necessary. (c) NationsBank reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the endorsement on the instructions is valid and genuine. NationsBank also reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the requested transfer or repurchase is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or repurchases which NationsBank, in its reasonable judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or repurchase. (d) When Shares are redeemed, NationsBank shall, upon receipt of the instructions and documents in proper form, deliver to the Custodian and the applicable Fund or its designee a notification setting forth the number of Shares to be redeemed. Such redeemed Shares shall be reflected on appropriate accounts maintained by NationsBank reflecting outstanding Shares of the applicable Fund and Shares attributed to individual accounts. (e) NationsBank shall, upon receipt of the monies paid to it by the Custodian for the redemption of Shares, pay such monies as are received from the Custodian, all in accordance with the procedures described in the Written Instructions received by NationsBank from the Funds. 2 (f) NationsBank shall not process or effect any repurchase with respect to Shares of any Fund after receipt by NationsBank or its agent of notification of the suspension of the determination of the net asset value of such Fund. 7. Dividends. (a) Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of the Funds with respect to Shares of the Funds, the Funds shall furnish or cause to be furnished to NationsBank Written Instructions setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the Shareholders of record as of that date, the total amount payable to NationsBank on the payment date and whether such dividend or distribution is to be paid in Shares at net asset value. (b) On or before the payment date specified in such resolution of the Board of Directors, the applicable Fund will pay to NationsBank sufficient cash to make payment on such payment date to the Shareholders of record on the record date. (c) If, prior to the payment date, NationsBank does not receive sufficient cash from the applicable Fund to make total dividend and/or distribution payments to all Shareholders of record of such Fund as of the record date, NationsBank will, upon notifying such Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to NationsBank. 8. Daily Activity. NationsBank will communicate via fax all "net" activity for the day to TSSG. TSSG shall update the transfer agent system and notify fund accounting of money movement based on such information. 9. In addition to and neither in lieu nor in contravention of the services set forth above, NationsBank shall: (i) perform all the customary services of a transfer agent, registrar, dividend disbursing agent and agent of the dividend reinvestment and cash purchase plan as described herein consistent with those requirements in effect as of the date of this Agreement. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders. 3 Schedule C Fee Schedule Upon receipt of the appropriate payment from the Funds, the Transfer Agent will compensate NationsBank for the performance of its obligations hereunder in accordance with a flat fee of $251,000 per year ($20,916.67 per month). EX-99.23(H)(20) 16 dex9923h20.txt AMENDED AND RESTATED FOREIGN CUSTODY MGR. AGREEMEN Exhibit 99.23(h)(20) AMENDED AND RESTATED FOREIGN CUSTODY MANAGER AGREEMENT AGREEMENT made as of July 2, 2001 among Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Separate Account Trust, Nations Master Investment Trust and Nations Funds Trust on behalf of their respective mutual funds identified on the Appendix hereto (each, a "Fund"; collectively, the "Funds") and The Bank of New York ("BNY"). W I T N E S S E T H: WHEREAS, each Fund has appointed BNY as a Foreign Custody Manager under a Foreign Custody Manager Agreement dated December 1, 1997 as amended as of August 6, 1998 (the "Prior Agreement"); WHEREAS, each Fund and BNY desire to amend and restate the Prior Agreement; WHEREAS, BNY desires to continue to serve as a Foreign Custody Manager and perform the duties set forth herein on the terms and condition contained herein; NOW THEREFORE, in consideration of the mutual promises hereinafter contained in this Agreement, each Fund and BNY hereby agrees as follows: ARTICLE I. DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "Board" shall mean the board of directors or board of trustees, as the case may be, of the relevant Fund. 2. "Eligible Foreign Custodian" shall have the meaning provided in the Rule (as defined below). 3. "Monitoring System" shall mean a system established by BNY to fulfill the Responsibilities (as defined below) specified in clause (b) of Section 1 of Article III of this Agreement. 4. "Responsibilities" shall mean the responsibilities delegated to BNY as a Foreign Custody Manager with respect to each Specified Country (as defined below) and each Eligible Foreign Custodian selected by BNY, as such responsibilities are more fully described in Article III of this Agreement. 5. "Rule" shall mean Rule 17f-5 under the Investment Company Act of 1940, as amended on June 12, 2000. 6. "Specified Country" shall mean each country listed on Schedule I attached hereto, and each country, other than the United States, with respect to which an Authorized Person (as defined in one or more Custody Agreement(s) between the relevant Fund and BNY as custodian (each, a "Custody Agreement")) has given settlement instructions to BNY as custodian (the "Custodian") under the Custody Agreement. ARTICLE II. BNY AS A FOREIGN CUSTODY MANAGER 1. Each Fund, by authority of its Board, hereby delegates to BNY with respect to each Specified Country the Responsibilities. 2. BNY accepts the Board's delegation of Responsibilities with respect to each Specified Country and agrees in performing the Responsibilities as a Foreign Custody Manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Funds' Foreign Assets (as defined in the Rule) would exercise. 3. BNY shall provide to the Board at such times as the Board deems reasonable and appropriate based on the circumstances of the Fund's foreign custody arrangements written reports notifying the Board of the placement of assets of the Fund with a particular Eligible Foreign Custodian within a Specified Country and of any material change in the arrangements (including, but not limited to, the contract governing such arrangements) with respect to assets of the Fund with any such Eligible Foreign Custodian and such additional information regarding such matters as and when the Board may reasonably request and containing such detail as the parties shall agree. ARTICLE III. RESPONSIBILITIES 1. (a) Subject to the provisions of this Agreement, BNY shall with respect to each Specified Country select an Eligible Foreign Custodian. In connection therewith, BNY shall: (i) determine that Foreign Assets of each Fund held by such Eligible Foreign Custodian will be subject to reasonable care, based on the standards applicable to custodians in the relevant market in which such Eligible Foreign Custodian operates, after considering all factors relevant to the safekeeping of such Foreign Assets, including, without limitation, those contained in Section (c)(1) of the Rule; (ii) determine that each Fund's foreign custody arrangements with each Eligible Foreign Custodian are governed by a written contract with the Custodian which will provide reasonable care for the Fund's Foreign Assets based on the standards specified in paragraph (c)(1) of the Rule; and (iii) determine that each contract with an Eligible Foreign Custodian shall include the provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or, alternatively, in -2- lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other provisions as BNY determines will provide, in their entirety, the same or a greater level of care and protection for the Foreign Assets of each Fund as such specified provisions in their entirety. (b) In addition, subject to the provisions of this Agreement, BNY shall with respect to each Eligible Foreign Custodian (i) monitor pursuant to the Monitoring System (x) the appropriateness of maintaining the Foreign Assets of the Funds with a particular Eligible Foreign Custodian pursuant to paragraph (c)(1) of the Rule and (y) performance of the contract governing such arrangement under paragraph (c)(2) of the Rule; and (ii) advise the appropriate Fund(s) whenever an arrangement (including any material change in the contract governing such arrangement) described in preceding clause (b)(i) no longer meets the requirements of the Rule. 2. For purposes of clause (b)(i) of preceding Section 1 of this Article, BNY's determination of appropriateness shall not include, nor be deemed to include, any evaluation of Country Risks associated with investment in a particular country. For purposes hereof, "Country Risks" shall mean systemic risks of holding, assets in a particular country including, but not limited to, (a) an Eligible Foreign Custodian's use of any depositories that act as or operate a system for the central handling of securities or equivalent book-entries, or a transnational system for the central handling of securities or any equivalent book-entries in their respective countries of incorporation; (b) such country's financial infrastructure, (c) such country's prevailing custody and settlement practices, (d) nationalization, expropriation or other governmental actions, (e) regulation of the banking or securities industry, (f) currency controls, restrictions, devaluations or fluctuations, and (g) market conditions which affect the orderly execution of securities transactions or affect the value of securities. ARTICLE IV. REPRESENTATIONS 1. Each Fund hereby represents that: (a) this Agreement has been duly authorized, executed and delivered by the Fund, constitutes a valid and legally binding obligation of the Fund enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Fund prohibits the Fund's execution or performance of this Agreement; (b) this Agreement has been approved and ratified by the Board at a meeting duly called and at which a quorum was at all times present; and (c) the Board or its investment adviser or investment sub-adviser pursuant to delegated authority has considered the Country Risks associated with investment in each Specified Country and will have considered such risks prior to any settlement instructions being given to the Custodian with respect to any other Specified Country. 2. BNY hereby represents that: (a) BNY is duly organized and existing under the laws of the State of New York, with full power to carry on its businesses as now conducted, and to enter into this Agreement and to perform its obligations hereunder; (b) BNY is a U.S. Bank, as defined in Section (a)(7) of the Rule; (c) this Agreement has been -3- duly authorized, executed and delivered by BNY, constitutes a valid and legally binding obligation of BNY enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on BNY prohibits BNY's execution or performance of this Agreement; and (d) BNY has established the Monitoring System. ARTICLE V. CONCERNING BNY 1. BNY shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, any Fund, except that BNY shall be liable for all such amounts to the extent the same arises out of the failure of BNY to exercise the care, prudence and diligence required by Section 2 of Article II hereof. In no event shall BNY be liable to any Fund, such Fund's Board, or any third party for special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement. 2. Each Fund shall indemnify BNY and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, BNY by reason or as a result of any action or inaction, or arising out of BNY's performance hereunder, provided that the Fund shall not indemnify BNY to the extent any such costs, expenses, damages, liabilities or claims arises out of BNY's failure to exercise the reasonable care, prudence and diligence required by Section 2 of Article II hereof. 3. For its services hereunder, each Fund agrees to pay to BNY such compensation and out-of-pocket expenses as shall be mutually agreed in writing, it being understood that the parties have no present intention that BNY receive any compensation or out-of-pocket expenses under this Agreement. 4. BNY shall have only such duties as are expressly set forth herein. In no event shall BNY be liable for any Country Risks associated with investments in a particular country. ARTICLE VI. MISCELLANEOUS 1. This Agreement constitutes the entire agreement between each Fund and BNY with respect to the matters covered hereby, and no provision in the Custody Agreement between the Fund and the Custodian shall affect the duties and obligations of BNY hereunder, nor shall any provision in this Agreement affect the duties or obligations of the Custodian under the Custody Agreement. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to BNY, shall be sufficiently given if received by it at its offices at 100 Church Street, 10/th/ Floor, New York, New York 10286, or at such other place as BNY may from time to time designate in writing. -4- 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to a Fund shall be sufficiently given if received by it at its offices at Richard H. Blank, Jr., Corporate Secretary, The Nations Funds, 111 Center Street, Suite 300, Little Rock, Arkansas 72201, with a copy to Edward D. Bedard, Bank of America Advisors, LLC, One Bank of America Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255, or at such other place as the Fund may from time to time designate in writing. 4. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the written consent of the other. 5. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. Each Fund and BNY hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. Each Fund hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Each Fund and BNY each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 6. The parties hereto agree that in performing hereunder, BNY is acting solely on behalf of the Funds and no contractual or service relationship shall be deemed to be established hereby between BNY and any other person. 7. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 8. As to any Fund this Agreement shall terminate simultaneously with the termination of the Custody Agreement between such Fund and the Custodian, and may otherwise be terminated by either party giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of such notice. -5- IN WITNESS WHEREOF, each Fund on behalf of its mutual funds identified on the Appendix hereto and BNY have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first above written. NATIONS FUND TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees NATIONS FUND, INC. By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Directors NATIONS RESERVES By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees NATIONS SEPARATE ACCOUNT TRUST By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees -6- NATIONS MASTER INVESTMENT TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees NATIONS FUNDS TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President -7- APPENDIX Nations Funds Trust 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations International Equity Fund 33. Nations International Value Fund 34. Nations Emerging Markets Fund 35. Nations Convertible Securities Fund 36. Nations California Municipal Bond Fund 37. Nations Intermediate Bond Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations MidCap Value Fund 51. Nations LargeCap Value Fund 52. Nations New York Tax-Exempt Reserves 53. Nations Research Fund 54. Nations California Intermediate Municipal Bond Fund 55. Corporate Bond Portfolio 56. Mortgage- and Asset-Backed Portfolio 57. High Income Portfolio 58. Nations SmallCap Core Fund Nations Separate Account Trust (formerly Nations Annuity Trust) 1. Nations Value Portfolio 2. Nations Marsico International Opportunities Portfolio 3. Nations Marsico 21st Century Portfolio 4. Nations Marsico Focused Equities Portfolio 5. Nations Marsico Growth Portfolio 6. Nations Capital Growth Portfolio 7. Nations Small Company Portfolio 8. Nations Asset Allocation Portfolio 9. Nations High Yield Bond Portfolio 10. Nations International Value Portfolio 11. Nations MidCap Growth Portfolio Nations Master Investment Trust 1. Nations Intermediate Bond Master Portfolio 2. Nations International Equity Master Portfolio 3. Nations Marsico Focused Equities Master Portfolio 4. Nations Marsico Growth Master Portfolio 5. Nations International Value Master Portfolio 6. Nations High Yield Bond Master Portfolio 7. Nations Marsico 21st Century Master Portfolio 8. Nations Marsico International Opportunities Master Portfolio 9. High Yield Portfolio 10. International Bond Portfolio 11. Nations SmallCap Value Master Portfolio 12. Nations Strategic Growth Master Portfolio Last amended: August 28, 2002 IN WITNESS WHEREOF, the parties hereto have caused the amended Appendix to be executed by their officers designated below as of the 28th day of August, 2002. NATIONS SEPARATE ACCOUNT TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS MASTER INVESTMENT TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS FUNDS TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President EX-99.(I)(1) 17 dex99i1.txt OPINION & CONSENT OF MORRISON & FOERSTER Exhibit 99.23(i)(1) [MORRISON & FOERSTER LLP LETTERHEAD] September 10, 2002 Nations Funds Trust 111 Center Street Little Rock, Arkansas 72201 Re: Shares of Beneficial Interest of Nations Funds Trust Dear Ladies and Gentlemen: We refer to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A (SEC File Nos. 333-89661; 811-09645) (the "Registration Statement") of Nations Funds Trust (the "Trust") relating to the registration of an indefinite number of Shares of Beneficial Interest of the Trust's Funds (collectively, the "Shares"). We have been requested by the Trust to furnish this opinion as Exhibit 99.23i(1) to the Registration Statement. We have examined such records, documents, instruments, and certificates of public officials and of the Trust, made such inquiries of the Trust, and examined such questions of law as we have deemed necessary for the purpose of rendering the opinion set forth herein. We have examined documents relating to the organization of the Trust and the authorization for registration and sale of Shares of each of the Funds. We have assumed the genuineness of all signatures and the authenticity of all items submitted to us as originals and the conformity with originals of all items submitted to us as copies. Based upon and subject to the foregoing, we are of the opinion that: The issuance and sale of the Shares by the Trust have been duly and validly authorized by all appropriate action, and assuming delivery of the Shares by sale or in accord with the Funds' dividend reinvestment plan in accordance with the description set forth in the Registration Statement, as amended, the Shares will be validly issued, fully paid and nonassessable. We consent to the inclusion of this opinion as an exhibit to the Registration Statement. In addition, we consent to the use of our name and to the reference to our Firm under the heading "Counsel" in the Statement of Additional Information. September 10, 2002 Page Two Very truly yours, /s/ MORRISON & FOERSTER LLP MORRISON & FOERSTER LLP EX-99.23(M)(2) 18 dex9923m2.txt SHAREHOLDER SERVICING AND DISTRIBUTION PLAN Exhibit 99.23 (m)(2) NATIONS FUNDS TRUST SHAREHOLDER SERVICING AND DISTRIBUTION PLAN INVESTOR A SHARES This Shareholder Servicing and Distribution Plan (the "Plan") for the Investor A shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor A Shares of the Trust's Funds or servicing agents for providing services under this Plan. Payments by the Trust under the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.25% of the average daily net assets of a Fund's Investor A Shares. Section 2. Expenses Covered by Plan. (a) Distribution Expenses. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. (b) Shareholder Servicing Expenses. The shareholder servicing activities for which compensation may be received under this Plan may include, among other things: (i) aggregating and processing purchase and redemption requests and transmitting promptly net purchase and 1 redemption orders to the Distributor or transfer agent; (ii) providing customers with a service that invests the assets of their accounts in Shares pursuant to specific or pre-authorized instructions; (iii) processing dividend and distribution payments; (iv) providing information periodically to customers showing their positions in Shares; (v) arranging for bank wires; (vi) responding to customers' inquiries concerning their investment in Shares; (vii) providing subaccounting with respect to Shares beneficially owned by customers or the information to the Trust necessary for subaccounting; (viii) if required by law, forwarding shareholder communications (such as proxies, shareholder reports, annual and semi-annual financial statements and dividend, distribution and tax notices) to customers; (ix) forwarding to customers proxy statements and proxies containing any proposals regarding the Shareholder Servicing Agreement; (x) general shareholder liaison services; and (xi) providing such other similar services as the Trust may reasonably request to the extent such firms are permitted to do so under applicable statutes, rules or regulations. Section 3. Agreements. (a) Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. (b) Shareholder Servicing Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix C or any other form duly approved by the Trust's Board of Trustees ("Shareholder Servicing Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor A Shares of the Funds of the Trust. With respect to Investor A Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. 2 Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 4. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 5. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor A Shares, upon its approval by (a) a majority of the outstanding Investor A Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 6. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 5. Section 7. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor A Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor A Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 5 hereof. Section 8. Termination. This Plan is terminable, as to a Fund's Investor A Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor A Shares of such Fund. Section 9. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor A Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor A Shares for the enforcement of any claims against the Trust. 3 Section 10. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 11. Miscellaneous. The captions in this Plan 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. 4 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations MidCap Index Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio 16. Nations MidCap Value Fund 17. Nations LargeCap Value Fund 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations LargeCap Index Fund 26. Nations Managed Index Fund 27. Nations SmallCap Index Fund 28. Nations Short-Intermediate Government Fund 29. Nations Short-Term Income Fund 30. Nations Strategic Income Fund 31. Nations Bond Fund 32. Nations Municipal Income Fund 33. Nations Short-Term Municipal Income Fund 34. Nations Intermediate Municipal Bond Fund 35. Nations Florida Intermediate Municipal Bond Fund 36. Nations Florida Municipal Bond Fund 37. Nations Georgia Intermediate Municipal Bond Fund 38. Nations Maryland Intermediate Municipal Bond Fund 39. Nations North Carolina Intermediate Municipal Bond Fund 40. Nations South Carolina Intermediate Municipal Bond Fund 41. Nations Tennessee Intermediate Municipal Bond Fund 42. Nations Texas Intermediate Municipal Bond Fund 5 43. Nations Virginia Intermediate Municipal Bond Fund 44. Nations Small Company Fund 45. Nations Cash Reserves 46. Nations Treasury Reserves 47. Nations Government Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund 54. Nations California Intermediate Municipal Bond Fund 55. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 6 EX-99.23(M)(3) 19 dex9923m3.txt DISTRIBUTION PLAN-INVESTOR B SHARES Exhibit 99.23(m)(3) NATIONS FUNDS TRUST DISTRIBUTION PLAN INVESTOR B SHARES This Distribution Plan (the "Plan") for the Investor B shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Distribution-Related Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor B Shares of the Trust's Funds. Payments by the Trust under this Section of the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.75% of the average daily net assets of a Fund's Investor B Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. Section 3. Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in 1 substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. Section 4. Limitations on Payments. Payment made by a particular Fund under Section 1 must be for distribution or sales support services rendered for or on behalf of such Fund. However, joint distribution or sales support financing with respect to the Funds (which financing may also involve other investment portfolios or companies that are affiliated persons of such a person, or affiliated persons of the Distributor) shall be permitted in accordance with applicable regulations of the Securities and Exchange Commission as in effect from time to time. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Plan and Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. With respect to Investor B Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 5. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 6. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor B Shares, upon its approval by (a) a majority of the outstanding Investor B Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 7. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 6. 2 Section 8. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor B Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor B Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 6 hereof. Section 9. Termination. This Plan is terminable, as to a Fund's Investor B Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor B Shares of such Fund. Section 10. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor B Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor B Shares for the enforcement of any claims against the Trust. Section 11. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 12. Miscellaneous. The captions in this Plan 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. 3 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 4 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund 54. Nations California Intermediate Municipal Bond Fund 55. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 5 EX-99.23(M)(4) 20 dex9923m4.txt DISTRIBUTION PLAN-INVESTOR C SHARES Exhibit 99.23(m)(4) NATIONS FUNDS TRUST DISTRIBUTION PLAN INVESTOR C SHARES This Distribution Plan (the "Plan") for the Investor C shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Distribution-Related Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor C Shares of the Trust's Funds. Payments by the Trust under this Section of the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.75% of the average daily net assets of a Fund's Investor C Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. Section 3. Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in 1 substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. Section 4. Limitations on Payments. Payment made by a particular Fund under Section 1 must be for distribution or sales support services rendered for or on behalf of such Fund. However, joint distribution or sales support financing with respect to the Funds (which financing may also involve other investment portfolios or companies that are affiliated persons of such a person, or affiliated persons of the Distributor) shall be permitted in accordance with applicable regulations of the Securities and Exchange Commission as in effect from time to time. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Plan and Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. With respect to Investor C Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 5. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 6. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor C Shares, upon its approval by (a) a majority of the outstanding Investor C Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 7. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 6. 2 Section 8. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor C Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor C Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 6 hereof. Section 9. Termination. This Plan is terminable, as to a Fund's Investor C Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor C Shares of such Fund. Section 10. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor C Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor C Shares for the enforcement of any claims against the Trust. Section 11. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 12. Miscellaneous. The captions in this Plan 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. 3 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 4 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund 54. Nations California Intermediate Municipal Bond Fund 55. Nations SmallCap Core Fund Approved: December 9, 1999 Last Amended: August 28, 2002 5 EX-99.243(O)(1) 21 dex99243o1.txt RULE 18F-3 MULTI CLASS PLAN Exhibit 99.23(0)(1) NATIONS FUNDS TRUST RULE 18f-3 MULTI-CLASS PLAN I. Introduction. Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), the following sets forth the method for allocating fees and expenses among each class of shares in the investment portfolios of Nations Funds Trust (the "Trust"). In addition, this Rule 18f-3 Multi-Class Plan (the "Plan") sets forth the maximum initial sales loads, contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing fees, conversion features, exchange privileges and other shareholder services, if any, applicable to a particular class of shares of the portfolios. The Plan also identifies expenses that may be allocated to a particular class of shares to the extent that they are actually incurred in a different amount by the class or relate to a different kind or degree of services provided to the class. The Trust is an open-end series investment company registered under the 1940 Act, the shares of which are registered on Form N-1A under the Securities Act of 1933 (Registration Nos. 333-89661 and 811-09645). The Trust elects to offer multiple classes of shares in its investment portfolios pursuant to the provisions of Rule 18f-3 and this Plan. The Trust currently consists of the following fifty-nine separate investment portfolios: Nations MidCap Index Fund, Nations High Yield Bond Fund, Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth Fund, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations California Municipal Bond Fund, Nations California Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Capital Growth Fund, Nations Strategic Growth Fund, Nations Convertible Securities Fund, Nations Value Fund, Nations MidCap Growth Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations SmallCap Index Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund, Nations Bond Fund, Nations Small Company Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Intermediate Bond Fund, Nations Research Fund, Nations SmallCap Value Fund and Nations SmallCap Core Fund (the "Non-Money Market Funds") and Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio (the "LifeGoal Portfolios") and Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Tax-Exempt Reserves, Nations Municipal 1 Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves (the "Money Market Funds"). The above-listed investment portfolios of the Trust (the "Funds") are authorized to issue the following classes of shares representing interests in the Funds: (i) Non-Money Market Funds (except Nations MidCap Index Fund, Nations SmallCap Index Fund, Nations LargeCap Index Fund, Nations Managed Index Fund and Nations Short-Intermediate Government Fund) -- Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares; (ii) Nations MidCap Index Fund, Nations SmallCap Index Fund and Nations LargeCap Index Fund-- Primary A Shares and Investor A Shares; (iii) Nations Managed Index Fund -- Primary A Shares, Primary B Shares and Investor A Shares; (iv) LifeGoal Portfolios and Nations Short-Intermediate Government Fund - Primary A Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C Shares; (v) Nations Government Reserves, Nations Treasury Reserves and Nations Tax-Exempt Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares, Investor C Shares and Investor A Shares; (vi) Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares and Investor C Shares; and (vii) Nations Cash Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares, Investor C Shares, Investor A Shares and Marsico Shares. II. Allocation of Expenses. A. Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to each class of shares in a Fund (i) any fees and expenses incurred by the Trust in connection with the 2 distribution of such class of shares under a distribution plan adopted for such class of shares pursuant to Rule 12b-1, and (ii) any fees and expenses incurred by the Trust under a shareholder servicing plan in connection with the provision of shareholder services to the holders of such class of shares. B. In addition, pursuant to Rule 18f-3, the Trust may allocate the following fees and expenses, if any, to a particular class of shares in a single Fund: (i) transfer agent fees identified by the transfer agent as being attributable to such class of shares; (ii) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, reports and proxies to current shareholders of such class of shares or to regulatory agencies with respect to such class of shares; (iii) blue sky registration or qualification fees incurred by such class of shares; (iv) Securities and Exchange Commission registration fees incurred by such class of shares; (v) the expense of administrative personnel and services (including, but not limited to, those of a portfolio accountant, custodian or dividend paying agent charged with calculating net asset values or determining or paying dividends) as required to support the shareholders of such class of shares; (vi) litigation or other legal expenses relating solely to such class of shares; (vii) fees of the Trustees of the Trust incurred as a result of issues relating to such class of shares; (viii) independent accountants' fees relating solely to such class of shares; and (ix) any other fees and expenses, not including advisory or custodial fees or other expenses related to the management of the Fund's assets, relating to (as defined below) such class of shares. C. For all purposes under this Plan, fees and expenses "relating to" a class of shares are those fees and expenses that are actually incurred in a different amount by the class or that relate to a different kind or degree of services provided to the class. The proper officers of the Trust shall have the authority to determine whether any or all of the fees and expenses described in Section B of this Part II should be allocated to a particular class of shares. The Board of Trustees will monitor any such allocations to ensure that they comply with the requirements of the Plan. 3 D. Income and any expenses of Nations California Municipal Bond Fund, Nations California Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund and Nations Bond Fund not allocated to a particular class of any such Fund pursuant to this Plan shall be allocated to each class of the Fund on the basis of the relative net assets (settled shares), as defined in Rule 18f-3, of that class in relation to the net assets of the Fund. Realized and unrealized capital gains and losses of Nations California Municipal Bond Fund, Nations California Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund and Nations Bond Fund shall be allocated to each class of the Fund on the basis of the relative net assets (settled shares), as defined in Rule 18f-3, of that class in relation to the net assets of the Fund. Income, realized and unrealized capital gains and losses, and any expenses of Nations MidCap Index Fund, Nations High Yield Bond Fund, Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth Fund, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Capital Growth Fund, Nations Strategic Growth Fund, Nations Convertible Securities Fund, Nations Value Fund, Nations MidCap Growth Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations SmallCap Index Fund, Nations Small Company Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Intermediate Bond Fund, Nations Research Fund, Nations SmallCap Value Fund, Nations SmallCap Core Fund, the LifeGoal Portfolios and the Money Market Funds not allocated to a particular class of any such Fund pursuant to this Plan shall be allocated to each class of the Fund on the basis of the relative net assets (settled shares), as defined in Rule 18f-3, of that class in relation to the net assets of the Fund. E. In certain cases, Banc of America Advisors, LLC, Banc of America Capital Management, LLC, Brandes Investment Partners, LP, Gartmore Global Partners, Banc of 4 America Securities LLC, Bank of America, N.A., Stephens Inc., PFPC Inc. or another service provider for a Fund may waive or reimburse all or a portion of the expenses of a specific class of shares of the Fund. The Board of Trustees will monitor any such waivers or reimbursements to ensure that they do not provide a means for cross-subsidization between classes. III. Class Arrangements. The following summarizes the maximum front-end sales charges, contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing fees, conversion features, exchange privileges and other shareholder services, if any, applicable to each class of shares of the Trust. Additional details regarding such fees and services are set forth in the relevant Fund's (or Funds') current Prospectus(es) and Statement of Additional Information. A. Capital Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Servicing Fees: None 5. Conversion Features/Exchange Privileges: Capital Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Capital Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. B. Liquidity Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Liquidity Class Shares of each Money Market Fund may reimburse Stephens for certain expenses incurred by Stephens in connection with the distribution of Liquidity Class Shares. Such reimbursement payments may not exceed 0.30%, on an annual basis, of the average daily net assets of such shares. In addition, the Distribution 5 Plan permits the Liquidity Class Shares of Nations Cash Reserves, Nations Government Reserves, Nations Municipal Reserves, Nations California Tax-Exempt Reserves, Nations Money Market Reserves and Nations Tax-Exempt Reserves to pay Stephens up to 0.30% and Nations Treasury Reserves to pay Stephens up to 0.35%, on an annual basis, of the average daily net assets of such shares which Stephens can use to compensate financial institutions that provide administrative and/or distribution services to the holders of Liquidity Class Shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Liquidity Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Liquidity Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Liquidity Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. C. Adviser Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Shareholder Servicing/Rule 12b-1 Distribution Fees: Pursuant to a Shareholder Servicing Plan, Adviser Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25%, on an annual basis, of the average daily net assets of such shares. The Adviser Class Shareholder Servicing Plan provides that, to the extent any portion of the fees payable under the Plan is deemed to be primarily for distribution-related services, such fees are deemed approved pursuant to the Shareholder Servicing Plan and Rule 12b-1. 4. Conversion Features/Exchange Privileges: Adviser Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6 5. Other Shareholder Services. Adviser Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. D. Market Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Market Class Shares of each Money Market Fund may pay distribution fees of up to 0.20% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Market Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Market Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Market Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. E. Trust Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Trust Class Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 7 5. Conversion Features/Exchange Privileges: Trust Class Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Trust Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. F. Institutional Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Institutional Class Shares of each Money Market Fund may pay shareholder administration fees of up to 0.04% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Institutional Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Institutional Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. G. Investor Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor Class Shares of each Money Market Fund may pay distribution fees of up to 0.10% of the average daily net assets of such shares. 8 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Investor Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Investor Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. H. Daily Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Daily Class Shares of each Money Market Fund may pay distribution fees of up to 0.35% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Daily Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Daily Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Daily Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. I. Service Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 9 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Service Class Shares of each Money Market Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Service Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Service Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Service Class Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. J. Primary A Shares -- All Funds. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Servicing Fees: None 5. Conversion Features/Exchange Privileges: Primary A Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services: Primary A Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 10 K. Primary B Shares-- LifeGoal Portfolios, Nations Short-Intermediate Government Fund and Nations Managed Index Fund 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, the Primary B Shares of the Funds each may pay shareholder administration fees of up to 0.60% of the average daily net assets of such shares, provided that in no event may the portion of such fee that constitutes a "service fee," as that term is defined in Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc., exceed 0.25% of the average daily net asset value of such Primary B Shares of a Fund. The Primary B Shareholder Administration Plan provides that, to the extent any portion of the fees payable under the Plan is deemed to be primarily for distribution-related services, such fees are deemed approved pursuant to the Shareholder Administration Plan and Rule 12b-1. 5. Conversion Features/Exchange Privileges: Primary B Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services: Primary B Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. L. Investor A Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor A Shares of each Money Market Fund may pay distribution fees of up to 0.10% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor A Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 11 5. Conversion Features/Exchange Privileges: Investor A Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 6. Other Shareholder Services: Investor A Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. M. Investor A Shares-- Nations MidCap Index Fund, Nations LargeCap Index Fund, Nations SmallCap Index Fund and Nations Managed Index Fund (the "Index Funds") Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution/Shareholder Servicing Fees: None 4. Conversion Features/Exchange Privileges: Investor A Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 5. Other Shareholder Services: Investor A Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. N. Investor A Shares-- LifeGoal Portfolios and all Non-Money Market Funds other than the Index Funds. 1. Maximum Initial Sales Load: (a) Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Value Fund, Nations Capital Growth Fund, Nations MidCap Growth Fund, Nations Strategic Growth Fund, Nations Small Company Fund, Nations Convertible Securities Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity 12 Fund, Nations Research Fund, Nations SmallCap Value Fund and Nations SmallCap Core Fund: maximum of 5.75%. (b) Nations High Yield Bond Fund, Nations Government Securities Fund, Nations California Municipal Bond Fund, Nations Strategic Income Fund, Nations Municipal Income Fund and Nations Florida Municipal Bond Fund: maximum of 4.75%. (c) Nations Intermediate Bond Fund, Nations California Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Intermediate Municipal Bond Fund and Nations Bond Fund: maximum of 3.25%. (d) Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund: maximum of 1.00% 2. Maximum Rule 12b-1 Distribution/Shareholder Servicing Fees: Pursuant to a Shareholder Servicing and Distribution Plan adopted under Rule 12b-1, Investor A Shares of each Fund may pay a combined distribution and shareholder servicing fee of up to 0.25% of the average daily net assets of such shares. 3. Conversion Features/Exchange Privileges: Investor A Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 4. Other Shareholder Services: Investor A Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. O. Investor B Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): 5.00% if redeemed within one 13 year of purchase, declining to 1.00% in the sixth year after purchase and eliminated thereafter. 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor B Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor B Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Investor B Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Investor B Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 7. Other Shareholder Services: Investor B Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. P. Investor B Shares-- LifeGoal Portfolios and Non-Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): (a) Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations High Yield Bond Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Value Fund, Nations Capital Growth Fund, Nations MidCap Growth Fund, Nations 14 Strategic Growth Fund, Nations Small Company Fund, Nations Convertible Securities Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Strategic Income Fund, Nations Municipal Income Fund, Nations California Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Research Fund, Nations SmallCap Value Fund and Nations SmallCap Core Fund: 5.00% if redeemed within one year of purchase, declining to 1.00% in the sixth year after purchase and eliminated thereafter. (b) Nations Kansas Municipal Income Fund, Nations Intermediate Bond Fund, Nations California Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Intermediate Municipal Bond Fund and Nations Bond Fund: 3.00% if redeemed within one year of purchase, declining to 1.00% in the fourth year after purchase and eliminated thereafter. (c) Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund: None. 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor B Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor B Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Investor B Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services: Investor B Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 15 B. Investor C Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): 1.00% if redeemed within one year of purchase and eliminated thereafter. 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor C Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor C Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Investor C Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Investor C Shares of a Money Market Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. 7. Other Shareholder Services: Investor C Shares of a Money Market Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Money Market Fund. Q. Investor C Shares-- LifeGoal Portfolios and Non-Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): 1.00% if redeemed within one year of purchase and eliminated thereafter. 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor C Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 16 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor C Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Investor C Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services: Investor C Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. R. Marsico Shares -- Nations Cash Reserves Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Marsico Shares of Nations Cash Reserves may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Marsico Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Marsico Shares of a Fund shall have such conversion features and exchange privileges, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 7. Other Shareholder Services: Marsico Shares of a Fund shall have such shareholder services, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. IV. Board Review. The Board of Trustees of the Trust shall review this Plan as frequently as it deems necessary. Prior to any material amendment(s) to this Plan, the Board of Trustees of the Trust, 17 including a majority of the Trustees who are not interested persons of the Trust, shall find that the Plan, as proposed to be amended (including any proposed amendments to the method of allocating class and/or fund expenses), is in the best interests of each class of shares of the Fund individually and the Fund as a whole. In considering whether to approve any proposed amendment(s) to the Plan, the Trustees of the Trust shall request and evaluate such information as they consider reasonably necessary to evaluate the proposed amendment(s) to the Plan. Adopted: December 9, 1999 Last amended: August 28, 2002 18 -----END PRIVACY-ENHANCED MESSAGE-----