As filed with the Securities and Exchange Commission
on February 20, 1998
Registration No. 333-40265; 811-08481
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [x]
(Check appropriate box or boxes)
-----------------------
NATIONS ANNUITY 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 & Frankel
Morrison & Foerster LLP 919 3rd Avenue
2000 Pennsylvania Ave., N.W. New York, New York 10022
Suite 5500
Washington, D.C. 20006
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this registration statement.
It is expected that the securities will be sold to the public as soon as
possible after the registration statement is effective.
<PAGE>
EXPLANATORY NOTE
-------------------
This Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A (the "Registration Statement") of Nations Annuity Trust (the "Trust")
is being filed in order to respond to the Securities and Exchange Commission
staff's comments and to file audited financial statements for the eight series:
Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio, Nations
International Growth Portfolio, Nations Marsico Focused Equities Portfolio,
Nations Marsico Growth & Income Portfolio, Nations Managed Index Portfolio,
Nations Managed SmallCap Index Portfolio and Nations Value Portfolio
(collectively, the "Funds").
<PAGE>
NATIONS ANNUITY TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
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<S> <C>
1. Cover Page ................................................ Cover Page
2. Synopsis .................................................. Prospectus Summary
3. Condensed Financial
Information ................................................ Not Applicable
4. General Description of
Registrant ................................................. Cover Page; Objectives; How
Objectives Are Pursued; Organization And
History
5. Management of the Fund .................................... How The Portfolios Are Managed
5A. Management's Discussion of Fund
Performance............................................... Not Applicable
6. Capital Stock and Other Securities ......................... Organization and History, How To
Buy Shares; How The Portfolios
Value Their Shares; How Dividends
And Distributions Are Made; Tax
Information
7. Purchase of Securities Being Offered ....................... How Performance Is Shown; How
To Buy Shares; How the Portfolios Value
Their Share
8. Redemption or Repurchase ................................... How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings .......................................... Not Applicable
Part B
Item No.
- -------
10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table of Contents
12. General Information and
History..................................................... Introduction
13. Investment Objectives and
Policies.................................................... Additional Information on Portfolio
Investments
14. Management of the Registrant................................ Trustees And Officers; Investment
Advisory, Administration, Custody Transfer
Agency, Shareholder Servicing and
Distribution Agreements
15. Control Persons and Principal
Holders of Securities....................................... Not Applicable
16. Investment Advisory and Other Services...................... Investment Advisory,
Administration, Custody, Transfer Agency,
Shareholder Servicing And Distribution
Agreements
17. Brokerage Allocation ....................................... Portfolio Transactions and
Brokerage--General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Custody, Transfer
Agency, Shareholder Servicing And
Distribution Agreements
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions; Distributor
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency
Shareholder Servicing And Distribution
Agreements; Distributor
<PAGE>
<CAPTION>
Part B
Item No.
- -------
<S> <C>
22. Calculation of Performance Data............................. Additional Information on
Performance
23. 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
</TABLE>
<PAGE>
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Prospectus
FEBRUARY , 1998
EQUITY PORTFOLIO
Nations Value Portfolio
Nations International Growth Portfolio
Nations Disciplined Equity Portfolio
Nations Marsico Focused Equities
Portfolio
Nations Marsico Growth & Income
Portfolio
INDEX PORTFOLIOS
Nations Managed Index Portfolio
Nations Managed SmallCap Index
Portfolio
BALANCED PORTFOLIO
Nations Balanced Assets Portfolio
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
INVESTMENT SUB-ADVISER: TradeStreet Investment Associates, Inc.
INVESTMENT SUB-ADVISER: Gartmore Global Partners
INVESTMENT SUB-ADVISER: Marsico Capital Management, LLC
DISTRIBUTOR: Stephens Inc. (Nations Fund Logo appears here)
<PAGE>
Prospectus
FEBRUARY , 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Portfolio") of Nations Annuity Trust (the "Trust"), an open-end
management investment company.
The Portfolios are made available to serve as the underlying funding vehicles
for certain variable annuity and variable life insurance separate accounts
issued by participating life insurance companies, including Hartford Life
Insurance Company ("Hartford") ("Participating Insurance Companies"), offering
variable annuity contracts and variable life insurance policies (hereinafter a
"Contract" or "Contracts").
Investors should read this Prospectus, along with the prospectus for a Contract
accompanying this Prospectus, before investing and retain it for future
reference. It sets forth concisely the information which a prospective purchaser
of a Contract should know about the Portfolios before making such a purchase.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI"), that has been filed with the Securities and
Exchange Commission (the "SEC") and is available upon request without charge by
writing or calling the Trust at its address or telephone number shown below. The
SAI for the Trust, dated February , 1998, is incorporated by reference in its
entirety into this Prospectus. The SEC maintains a Web site (http://www.sec.gov)
that contains the SAI, material incorporated by reference in this Prospectus and
other information regarding registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the Portfolios.
TradeStreet Investment Associates, Inc. ("TradeStreet") is investment
sub-adviser to certain of the Portfolios, Gartmore Global Partners ("Gartmore")
is investment sub-adviser to Nations International Growth Portfolio, and Marsico
Capital Management, LLC ("Marsico Capital") is investment sub-adviser to Nations
Marsico Focused Equities Portfolio and Nations Marsico Growth & Income
Portfolio. As used herein the term "Adviser" shall mean NBAI, TradeStreet,
Gartmore and/or Marsico Capital as the context may require.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AFFILIATES PROVIDE SERVICES TO THE
PORTFOLIOS, FOR WHICH THEY ARE COMPENSATED. STEPHENS
INC., WHICH IS NOT AFFILIATED WITH NATIONSBANK, IS
THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE
DISTRIBUTOR FOR THE PORTFOLIOS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EQUITY PORTFOLIOS:
Nations Value Portfolio
Nations International Growth
Portfolio
Nations Disciplined Equity
Portfolio
Nations Marsico Focused
Equities Portfolio
Nations Marsico Growth &
Income Portfolio
INDEX PORTFOLIOS:
Nations Managed Index
Portfolio
Nations Managed SmallCap
Index Portfolio
BALANCED PORTFOLIO:
Nations Balanced Assets
Portfolio
For Portfolio information
call:
1-800-765-2668
Nations Annuity Trust
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Participating Insurance Companies 3
Portfolios ----------------------------------------------------
Objectives 3
----------------------------------------------------
How Objectives Are Pursued 3
----------------------------------------------------
How Performance Is Shown 11
----------------------------------------------------
How The Portfolios Are Managed 12
----------------------------------------------------
Organization And History 16
----------------------------------------------------
About Your How To Buy Shares 16
Investment ----------------------------------------------------
How To Redeem Shares 17
----------------------------------------------------
Shareholder Servicing And Distribution Plan 17
----------------------------------------------------
How The Portfolios Value Their Shares 17
----------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 18
----------------------------------------------------
General Information 18
----------------------------------------------------
Appendix A -- Portfolio Securities 19
----------------------------------------------------
Appendix B -- Description Of Ratings 27
----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Portfolios
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Participating Insurance Companies
The Portfolios are made available to serve as the underlying investment vehicles
for certain variable annuity and variable life insurance separate accounts
issued by Participating Insurance Companies. Each Portfolio is an open-end
management investment company, organized as a Delaware business trust. Each of
the Portfolios have different investment objectives and policies. Each Contract
is described in a separate prospectus issued by the Participating Insurance
Companies. The Trust assumes no responsibility for such prospectus. For a
discussion of the Portfolios' objectives and policies, see "Objectives" and "How
Objectives Are Pursued" below.
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Objectives
EQUITY PORTFOLIOS:
NATIONS VALUE PORTFOLIO: Nations Value Portfolio's investment objective is to
seek growth of capital by investing in companies that are believed to be
undervalued.
NATIONS INTERNATIONAL GROWTH PORTFOLIO: Nations International Growth Portfolio's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
NATIONS DISCIPLINED EQUITY PORTFOLIO: Nations Disciplined Equity Portfolio's
investment objective is to seek growth of capital by investing in companies that
are expected to produce significant increases in earnings per share.
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO: Nations Marsico Focused Equities
Portfolio's investment objective is to seek long-term growth of capital. It is a
non-diversified fund that pursues its objective by normally investing in a core
position of 20-30 common stocks. NATIONS MARSICO GROWTH & INCOME
PORTFOLIO: Nations Marsico Growth & Income Portfolio's investment objective is
to seek long-term growth of capital with a limited emphasis on income. Under
normal circumstances, the Portfolio pursues its objective by investing up to 75%
of its assets in equity securities selected primarily for their growth potential
and at least 25% of its assets in securities that have income potential.
INDEX PORTFOLIOS:
NATIONS MANAGED INDEX PORTFOLIO: Nations Managed Index Portfolio's investment
objective is to seek, over the long-term, to provide a total return which (gross
of fees and expenses) exceeds the total return of the Standard & Poor's 500
Composite Stock Price Index.
NATIONS MANAGED SMALLCAP INDEX PORTFOLIO: Nations Managed SmallCap Index
Portfolio's investment objective is to seek, over the long-term, to provide a
total return which (gross of fees and expenses) exceeds the total return of the
Standard & Poor's SmallCap 600 Index.
BALANCED PORTFOLIO:
NATIONS BALANCED ASSETS PORTFOLIO: Nations Balanced Assets Portfolio's
investment objective is to seek total return by investing in equity and fixed
income securities.
Although the Adviser will seek to achieve the investment objective of each
Portfolio, there is no assurance that it will be able to do so. No single
Portfolio should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Portfolio are not insured against
loss of principal.
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How Objectives Are Pursued
EQUITY PORTFOLIOS:
NATIONS VALUE PORTFOLIO: The Portfolio invests in stocks drawn from a broad
universe of companies monitored by the Adviser. The Adviser closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and
3
<PAGE>
sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Portfolio invests under normal market conditions at least 65% of its total
assets in common stocks. In addition to common stocks, the Portfolio also may
invest in preferred stocks, securities convertible into common stock and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities). Although the Portfolio invests
primarily in publicly-traded common stocks of companies incorporated in the
United States, the Portfolio may invest up to 20% of its assets in foreign
securities. The Portfolio also may hold up to 20% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies and instrumentalities (together, with U.S. Treasury Obligations, "U.S.
Government Obligations"), and investment grade securities of domestic companies.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's")) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Portfolio. The Adviser will consider such an event
in determining whether the Portfolio should continue to hold the obligation.
Unrated obligations may be acquired by the Portfolio if they are determined by
the Adviser to be of comparable quality at the time of purchase to rated
obligations that may be acquired.
The Portfolio may invest in various money market instruments and repurchase
agreements. The Portfolio may invest without limitation in such instruments
pending investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
NATIONS INTERNATIONAL GROWTH PORTFOLIO: In pursuing its investment objective,
under normal market conditions, the Portfolio will invest at least 65% of its
total assets in foreign equity securities listed on major exchanges, consisting
of common stocks, preferred stocks and convertible securities, such as warrants,
rights and convertible debt. The Portfolio may purchase the stock of small-,
mid- and large-capitalization companies.
The Portfolio may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Trustees, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Portfolio will be rated
in the top two categories by a nationally recognized statistical rating
organization ("NRSRO"), or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Portfolio may invest
up to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Portfolio may invest include short-term and
intermediate-term obligations of corporations, foreign governments and
international organizations (such as the International Bank for Reconstruction
and Development (the "World Bank")), including money market instruments.
The Portfolio may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Portfolio may invest in American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), European Depository Receipts ("EDRs") and
American Depository Shares ("ADSs").
NATIONS DISCIPLINED EQUITY PORTFOLIO: The investment philosophy of the Portfolio
is based on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Portfolio invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Portfolio seeks to provide investors with
long-term capital appreciation which exceeds that of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index").1
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
4
<PAGE>
In selecting stocks for the Portfolio, the Adviser utilizes quantitative
analysis and optimization tools. This approach seeks to identify companies with
improving profit potential through analysis of earnings forecasts issued by
investment banks, broker/dealers and other investment professionals. The Adviser
believes that companies experiencing such earnings trends have the potential to
generate significant increases in per share earnings. The Adviser also believes
that companies with increasing earnings should experience positive trends in
their stock price. The quantitative analysis also includes ranking the
attractiveness of equity securities according to a multi-factor valuation model.
Both value and growth factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while growth characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. The objective is to maintain a broadly
diversified portfolio which ranks in the top quartile on earnings momentum and
in the top third on valuation. This approach generally produces a dividend yield
less than the market average. Although this Portfolio seeks to invest in
attractively priced securities with increasing earnings, its investment
objective focuses on long-term capital appreciation; income is not an objective
of this Portfolio.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Portfolio's assets, the Portfolio may invest in a broad range of equity and
debt instruments, including preferred stocks, securities (debt and preferred
stock) convertible into common stock, warrants and rights to purchase common
stocks, options, U.S. government and corporate debt securities and various money
market instruments. The Portfolio will invest primarily in medium- and large-
sized companies (I.E. companies with market capitalizations of $500 million or
greater) that are determined to have favorable price/earnings ratios. The
Portfolio also may invest in securities issued by companies with market
capitalizations of less than $500 million. The volatility of
small-capitalization stocks is typically greater than that of larger companies.
To help reduce risk, the Portfolio will invest in the securities of companies
representing a broad range of industries and economic sectors.
The Portfolio's investments in debt securities, including convertible
securities, will be limited to securities rated investment grade (E.G.
securities rated in one of the top four investment categories by an NRSRO or, if
not rated, are of equivalent quality as determined by the Adviser). Obligations
rated in the lowest of the top four investment grade rating categories have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
The Portfolio may invest up to 20% of its total assets in foreign securities.
For temporary defensive purposes if market conditions warrant, the Portfolio may
invest without limitation in preferred stocks, investment grade debt
instruments, money market instruments and repurchase agreements.
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO: Nations Marsico Focused Equities
Portfolio is a non-diversified fund that pursues its objective by normally
investing in a core position of 20-30 common stocks. Under normal circumstances,
the Portfolio invests at least 65% of its assets in large capitalization common
stocks selected for their growth potential. The Portfolio may invest to a lesser
degree in other types of securities, including preferred stock, warrants,
convertible securities and debt securities.
In building the portfolio, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:
(Bullet) Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
(Bullet) Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
(Bullet) Global reach -- The Adviser selects securities without geographic bias
in the belief that the global market is both a source of growth
opportunity and a hedge against fluctuations and dislocations of local
markets.
(Bullet) Themes -- The Adviser seeks companies that are moving with, not
against, the major social, economic and cultural shifts taking place
in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and "bottom-up" elements. The "top-down" of
the process takes into consideration such macroeconomic factors as interest
rates, inflation, the regulatory environment and the global competitive
landscape, and also analyzes such factors as the most attractive global
opportunities, industry consolidation and the sustainability of economic trends.
With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Realization of income is not a significant investment consideration. Any income
realized on the Fund's investments will be incidental to its objective.
5
<PAGE>
NATIONS MARSICO GROWTH & INCOME PORTFOLIO: Under normal circumstances, the
Nations Marsico Growth & Income Portfolio pursues its objective by investing up
to 75% of its assets in equity securities selected primarily for their growth
potential and at least 25% of its assets in securities that have income
potential. The Portfolio typically emphasizes the growth component. However, in
adverse market conditions, the Portfolio may reduce the growth component of its
portfolio to 25% of its assets. The Portfolio may invest in any combination of
common stock, preferred stock, warrants, convertible securities and debt
securities. However, it is expected that the Portfolio will emphasize
investments in large capitalization common stocks. The Portfolio may shift
assets between the growth and income components of its portfolio based on the
Adviser's analysis of relevant market, financial and economic conditions. If the
Adviser believes that growth securities will provide better returns than the
yields then available or expected on income-producing securities, then the
Portfolio will place a greater emphasis on the growth component. In building the
portfolio, the Adviser seeks to identify individual companies with earnings
growth potential that may not be recognized by the market at large. To identify
such opportunities, the Adviser looks for a combination of four characteristics:
(Bullet) Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
(Bullet) Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
(Bullet) Global reach -- The Adviser selects securities without geographic bias
in the belief that the global market is both a source of growth
opportunity and a hedge against fluctuations and dislocations of local
markets.
(Bullet) Themes -- The Adviser seeks companies that are moving with, not
against, the major social, economic and cultural shifts taking place
in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and "bottom-up" elements. The "top-down"
element of the process takes into consideration such macroeconomic factors as
interest rates, inflation, the regulatory environment and the global competitive
landscape, and also analyzes such factors as the most attractive global
opportunities, industry consolidation and the sustainability of economic trends.
With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Because income is a part of the investment objective of the Portfolio, the
Adviser may also consider dividend-paying characteristics in selecting equity
securities for the Portfolio. The Portfolio may also find opportunities for
capital growth from debt securities because of anticipated changes in interest
rates, credit standing, currency relationships or other factors. Investors in
the Portfolio should keep in mind that the Portfolio is not designed to produce
a consistent level of income.
ABOUT NATIONS MARSICO FOCUSED EQUITIES FUND AND NATIONS MARSICO GROWTH & INCOME
FUND: Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income
Fund may also invest up to 25% of their assets in mortgage- and asset-backed
securities, up to 10% of their assets in zero coupon, pay-in-kind and step
coupon securities, and may invest without limit in indexed/structured
securities. The Portfolios will invest no more than 35% of their assets in
high-yield/high-risk securities. The Portfolios may also purchase high-grade
commercial paper, certificates of deposit, and repurchase agreements. The
Portfolios may also invest in short-term debt securities as a means of receiving
a return on idle cash.
When the Adviser believes that market conditions are not favorable for
profitable investing or when the Adviser is otherwise unable to locate favorable
investment opportunities, the Portfolios may hold cash or cash equivalents and
invest without limit in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations") and short-term
debt securities or money market instruments if the Adviser determines that a
temporary defensive position is advisable or to meet anticipated redemption
requests. In other words, the Portfolios do not always stay fully invested in
stocks and bonds. Cash or similar investments are a residual -- they represent
the assets that remain after the Adviser has committed available assets to
desirable investment opportunities. When the Portfolios' cash positions
increase, they may not participate in stock market advances or declines to the
extent that they would if they remained more fully invested in common stocks.
The Portfolios may invest up to 25% of their assets in foreign equity and debt
securities. The Portfolios may invest directly in foreign securities denominated
in a foreign currency and not publicly traded in the United States. Other ways
of investing in foreign securities include depository receipts or shares, and
passive foreign investment companies. Foreign securities are generally selected
on a company-by-company basis without regard to any defined allocation among
countries or geographic regions. However, certain factors such as expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships, and prospects for economic growth among
countries, regions or geographic areas may warrant greater consideration
6
<PAGE>
in selecting foreign securities. The Portfolios may use options, futures,
forward currency contracts and other types of derivatives for hedging purposes
or for non-hedging purposes such as seeking to enhance return. The Portfolios
may purchase securities on a when-issued, delayed delivery or forward commitment
basis.
GENERAL: Each Equity Portfolio also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Portfolio may lend its portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. Each
Equity Portfolio also may invest in real estate investment trust securities. In
addition, each Equity Portfolio may invest in securities issued by other
investment companies, consistent with the Portfolio's investment objective and
policies and repurchase agreements. Nations International Growth Portfolio,
Nations Marsico Focused Equities Portfolio and Nations Marsico Growth & Income
Portfolio may invest in forward foreign exchange contracts.
For more information concerning these and other investments in which the
Portfolios may invest and their investment practices, see "Appendix A."
INDEX PORTFOLIOS:
NATIONS MANAGED INDEX PORTFOLIO: In seeking to achieve its investment objective,
the Portfolio will invest in selected equity securities that are included in the
S&P 500 Index. The S&P 500 Index is a market capitalizaton weighted index
consisting of 500 common stocks chosen for market size, liquidity and industry
group representation.
Unlike traditional index portfolios, the Portfolio has a "managed" overlay. The
Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the overall investment
characteristics of the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Portfolio's assets as is practical and, in any event the Portfolio will invest
at least 80% of its total assets, in common stocks which are included in the S&P
500 Index. The Portfolio is expected, however, to maintain a position in
high-quality short-term debt securities and money market instruments to meet
redemption requests. If the Adviser believes that market conditions warrant a
temporary defensive posture, the Portfolio may invest without limitation in
high-quality short-term debt securities and money market instruments. These
securities and money market instruments may include domestic and foreign
commercial paper, certificates of deposit, bankers' acceptances and time
deposits, U.S. Government Obligations and repurchase agreements.
NATIONS MANAGED SMALLCAP INDEX PORTFOLIO: In seeking to achieve its investment
objective, the Portfolio will invest in selected equity securities that are
included in the Standard & Poor's SmallCap 600 Index (the "S&P 600 Index.")2 The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance.
Unlike traditional index funds, the Portfolio has a "managed" overlay. The
Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the S&P 600 Index over time.
From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either
2 "Standard & Poor's SmallCap 600" is a registered service mark of S&P.
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underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400 to 500 holdings that capture the overall investment characteristics of the
S&P 600 Index.
Under normal conditions, substantially all of the Portfolio's assets, and, in
any event at least 80% of its total assets, will be invested in common stocks
which are included in the S&P 600 Index. The Portfolio is expected, however, to
maintain a position in high-quality short-term debt securities and money market
instruments to meet redemption requests. If the Adviser believes that market
conditions warrant a temporary defensive posture, the Portfolio may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. Government Obligations and repurchase agreements.
ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the S&P 500 Index. The
S&P 600 Index is composed of 600 domestic stocks, which are chosen by S&P based
on, among other things, market size, liquidity and industry group
representation.
The S&P 600 Index is designed to be a benchmark of small capitalization stock
performance. Most of these stocks are listed on either the New York, American or
NASDAQ stock exchanges.
The inclusion of a stock in the S&P 500 Index or the S&P 600 Index (the
"Indexes") in no way implies that S&P believes the stock to be an attractive
investment. The Indexes are determined, composed and calculated by S&P without
regard to the Portfolios. S&P is not a sponsor of, or in any way affiliated
with, the Portfolios, and does not make any representations or warranties,
expressed or implied, on the advisability of investing in the Portfolios or as
to the ability of the Indexes to track general stock market performance. S&P
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Indexes or any data included therein.
GENERAL: Each Index Portfolio also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Portfolio may lend its
portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. In addition, each Portfolio may invest in securities issued by other
investment companies, consistent with such Portfolio's investment objective and
policies.
In addition, when consistent with such Portfolio's respective investment
objective, each of the Portfolios will employ various techniques to manage
capital gain distributions. These techniques include utilizing a share
identification methodology whereby the Portfolio will specifically identify each
lot of shares of portfolio securities that it holds, which will allow the
Portfolio to sell first those specific shares with the highest tax basis in
order to reduce the amount of recognized capital gains as compared with a sale
of identical portfolio securities, if any, with a lower tax basis. The Portfolio
will sell first those shares with the highest tax basis only when it is in the
best interest of the Portfolio to do so, and reserves the right to sell other
shares when appropriate. In addition, the Portfolio may, at times, sell
portfolio securities in order to realize capital losses. Such capital losses
would be used to offset realized capital gains thereby reducing capital gain
distributions. Additionally, the Adviser will, consistent with the portfolio
construction process discussed above, employ a low portfolio turnover strategy
designed to defer the realization of capital gains.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Portfolios, the Adviser will
attempt to minimize these transaction costs by utilizing program trades and
computerized exchanges called "crossing networks" which allow institutions to
execute trades at the midpoint of the bid/ask spread and at a reduced commission
rate.
For more information concerning these and other investments in which the
Portfolios may invest and their invesment practices, see "Appendix A".
BALANCED PORTFOLIO:
NATIONS BALANCED ASSETS PORTFOLIO: In pursuing the Portfolio's objective, the
Adviser will allocate the Portfolio's assets based upon its judgment of the
relative valuation and the expected returns of the three major asset classes in
which the Portfolio invests: common stocks, fixed income securities, and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
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The Portfolio invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Portfolio's
assets will be invested in fixed income securities. The Portfolio may invest in
government, corporate and municipal debt securities, as well as mortgage-backed
and asset-backed securities. Most obligations acquired by the Portfolio will be
issued by companies or governmental entities located within the United States.
Debt obligations acquired by the Portfolio will be rated investment grade at the
time of purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA") or Thomson BankWatch, Inc. ("BankWatch"), or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch, IBCA and BankWatch are the six NRSROs. Obligations
with the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Portfolio, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Portfolio. The Adviser will consider such an event in
determining whether the Portfolio should continue to hold the obligation.
Unrated obligations may be acquired by the Portfolio if they are determined by
the Adviser to be of comparable quality, at the time of purchase, to rated
obligations that may be acquired.
Although the Portfolio invests primarily in securities of U.S. issuers, the
Portfolio may invest up to 25% of its total assets in foreign securities.
The Portfolio also may invest in various money market instruments and repurchase
agreements. The Portfolio may invest without limitation in such instruments
pending investment, to meet anticipated redemption requests, or as a temporary
defense measure if market conditions warrant.
The Portfolio may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk-management. The Portfolio may lend its portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. The Portfolio may
engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Portfolio may purchase securities issued by other investment
companies, consistent with the Portfolio's investment objective and policies.
The Portfolio also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations in,
or debt investments backed by, the securities and other assets owned by such
trusts and partnerships.
Certain securities that have variable or floating interest rates or demand or
put features may be deemed to have remaining maturities shorter than their
nominal maturities for purposes of determining the average weighted maturity and
duration of the Portfolio.
For more information concerning these and other investments in which the
Portfolio may invest and its investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Portfolio's shares, such changes will
not affect the income received by the Portfolio from such securities. However,
since available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Portfolio will increase or decrease in
relation to the income received by the Portfolio from its investments, which
will in any case be reduced by the Portfolio's expenses before being distributed
to the Portfolio's shareholders.
PORTFOLIO TURNOVER: Generally, the Equity Portfolios, the Index Portfolios and
the Balanced Portfolio will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. If a Portfolio's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. While it is not possible to exactly predict annual
portfolio turnover rates, it is expected that under normal market conditions,
the annual portfolio turnover rate will not exceed the following: Nations Value
Portfolio -- 50%; Nations International Growth Portfolio -- 100%; Nations
Disciplined Equity Portfolio -- 125%; Nations Marsico Focused Equities Portfolio
- -- 100%; Nations Marsico Growth & Income Portfolio -- 100%; Nations Managed
Index Portfolio -- 25%; Nations Managed SmallCap Index Portfolio -- 25%; and
Nations Balanced Assets Portfolio -- 175%.
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RISK CONSIDERATIONS: Investments by a Portfolio in common stocks and other
equity securities are subject to stock market risks. The value of the stocks
that the Portfolio holds, like the broader stock market, may decline over short
or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline. As of the date of this Prospectus, the stock market, as measured by the
S&P 500 Index and other commonly used indexes, was trading at or close to record
levels. There can be no guarantee that these levels will continue.
Nations Marsico Focused Equities Portfolio, as a non-diversified fund, may
invest in fewer issuers than diversified funds such as Nations Marsico Growth &
Income Portfolio. Therefore, appreciation or depreciation of an investment in a
single issuer could have a greater impact on the Portfolio's net asset value.
The Portfolio reserves the right to become a diversified fund by limiting the
investments in which more than 5% of its total assets are invested.
The value of a Portfolio's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Portfolios' investments constitute derivative securities, which
are securities whose value is derived, at least in part, from an underlying
index or reference rate. There are certain types of derivative securities that
can, under certain circumstances, significantly increase a purchaser's exposure
to market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent with
such Portfolio's investment objective and do not unduly increase the Portfolio's
exposure to market or other risks. For additional risk information regarding the
Portfolios' investments in particular instruments, see "Appendix A -- Portfolio
Securities."
Certain of the Portfolios may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
GROWTH PORTFOLIO: Investors should understand and consider carefully the special
risks involved in foreign investing.
Investors in Nations International Growth Portfolio should be aware that the
Portfolio may, from time to time, invest up to 35% of its total assets in
securities of companies located in Eastern Europe. Economic and political
reforms in this region are still in their infancy. As a result, investment in
such countries would be highly speculative and could result in losses to the
Portfolio and, thus, to its shareholders.
Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect the Portfolio's share price. General economic and political
factors in the various world markets also can impact the Portfolio's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Portfolio offers a more efficient way for individual investors to
participate in foreign markets, their expenses, including custodial fees, are
also higher than the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in Nations International Growth Portfolio.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX PORTFOLIOS:
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax basis, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the
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portfolio. Under this scenario, an investor who purchases shares of an Index
Portfolio after the first sale could receive capital gain distributions that are
higher than the distributions that would have been received if this methodology
had not been used. Therefore, certain investors actually could be disadvantaged
by the techniques employed by the Portfolios to seek to manage capital gain
distributions, depending on the timing of their purchase of Portfolio shares.
Even if there are no subsequent sales, upon a redemption or exchange of
Portfolio shares an investor will have to recognize gain to the extent that the
net asset value of Portfolio shares at such time exceeds such investor's tax
basis in his or her Portfolio shares.
The various techniques employed by the Portfolios to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Portfolios. Moreover, the realization of capital gains is not entirely
within a Portfolio's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
INVESTMENT LIMITATIONS: Each Portfolio is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares. Other investment limitations
that cannot be changed without such a vote of shareholders are described in the
SAI.
Each Portfolio may not:
1. Purchase any securities which would cause 25% or more of the value of the
Portfolio's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Portfolio may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Portfolio (except Nations Marsico Focused Equities Portfolio) may not
purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Portfolio's
total assets would be invested in the securities of such issuer, except that up
to 25% of the value of the Portfolio's total assets may be invested without
regard to these limitations and with respect to 75% of such Portfolio's assets,
such Portfolio will not hold more than 10% of the voting securities of any
issuer.
Nations Marsico Focused Equities Portfolio may not purchase securities of any
one issuer (other than securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, immediately after such purchase, more
than 25% of the value of the Portfolio's total assets would be invested in the
securities of one issuer, and with respect to 50% of the Portfolio's total
assets, more than 5% of its assets would be invested in the securities of one
issuer.
Nations International Growth Portfolio may not borrow money except as a
temporary measure and then only in amounts not exceeding 5% of the value of the
Portfolio's total assets or from banks or in connection with reverse repurchase
agreements provided that immediately after such borrowing, all borrowings of the
Portfolio do not exceed one-third of the Portfolio's total assets and no
purchases of portfolio instruments will be made while the Portfolio has
borrowings outstanding in an amount exceeding 5% of its total assets.
The investment objective and policies of each Portfolio, unless otherwise
specified, are non-fundamental and may be changed without shareholder approval.
If the investment objective or policies of a Portfolio change, shareholders
should consider whether the Fund remains an appropriate investment in light of
their current position and needs.
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How Performance Is Shown
From time to time the Portfolios may advertise total return and yield. BOTH
TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "total return" may be calculated on an
average annual total return basis or an aggregate total return basis. Average
annual total return refers to the average annual compounded rates of return over
one-, five-, and ten-year periods or the life of a Portfolio (as stated in the
Portfolio's advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
assuming the reinvestment of all dividend and capital gain distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period, again assuming the reinvestment of all
dividends and capital gain distributions. Total return may also be presented for
other periods.
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"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period by the maximum public offering
price per share on the last day of that period.
Total return and yield figures quoted for the Portfolios include the effect of
deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Since you can only purchase
shares of the Portfolios through an insurance product, you should carefully
review the prospectus of the insurance product you have chosen for information
on relevant charges and expenses. Excluding these charges from quotations of the
Portfolio's performance has the effect of increasing the performance quoted.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Portfolio's securities and a Portfolio's
operating expenses as well as the charges and fees imposed by the separate
accounts. Investment performance also often reflects the risks associated with
such Portfolio's investment objective and policies. These factors should be
considered when comparing a Portfolio's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in a Portfolio with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any Portfolio advertising will be accompanied by performance information of the
related Participating Insurance Company's separate account which fund the
Contract or by an explanation that Portfolio performance information does not
reflect separate account fees and charges.
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How The Portfolios Are Managed
The business and affairs of Nations Annuity Trust are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of the Trust.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Portfolios pursuant to an Investment Advisory Agreement with the Trust
("Investment Advisory Agreement"). NBAI is a wholly owned subsidiary of
NationsBank, which in turn is a wholly owned banking subsidiary of NationsBank
Corporation, a bank holding company organized as a North Carolina corporation.
NBAI has its principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to all of the Portfolios except for Nations International Growth
Portfolio, Nations Marsico Focused Equities Portfolio and Nations Marsico Growth
& Income Portfolio. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions. Gartmore Global Partners, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to Nations International Growth Portfolio pursuant to a sub-advisory
agreement. Gartmore is a joint venture structured as a general partnership
between NB Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore
U.S. Limited, an indirect, wholly owned subsidiary of Gartmore Investment
Management plc ("Gartmore plc"), a UK company which is the holding company for a
leading UK-based international fund management group of companies. National
Westminster Bank plc and affiliated entities (collectively, "NatWest") own 100%
of the equity of Gartmore Investment Management plc.
Marsico Capital Management, LLC, located at 1200 17th Street, Suite 1300,
Denver, CO 80202, serves as the investment sub-adviser to Nations Marsico
Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio
pursuant to an Investment Sub-Advisory Agreement entered into with the Trust,
which provides that Marsico Capital will furnish continuous investment advisory
and management services to the Funds. Thomas F. Marsico is Chairman and Chief
Executive Officer of Marsico Capital and has voting control of the company.
Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager. NationsBank has an option
to purchase up to 50% of Marsico Capital.
Subject to the general supervision of the Trust's Board of Trustees and NBAI,
and in accordance with each Portfolio's investment policies, the Adviser
formulates guidelines and lists of approved investments for each Portfolio,
makes decisions with respect to and places orders for each Portfolio's purchases
and sales of portfolio securities and maintains records relating to such
purchases and sales. The Adviser is authorized to allocate purchase and sale
orders for portfolio securities to certain financial institutions, including, in
the case of agency transactions, financial institutions which are affiliated
with NBAI or which have sold shares in the Portfolios, if the Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified brokerage firms. From time to time, to the
extent consistent with its investment objective, policies and restrictions, each
Portfolio may invest in securities of companies with which NationsBank has a
lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .50% of the average
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daily net assets of Nations Managed Index Portfolio and Nations Managed SmallCap
Index Portfolio; .75% of the average daily net assets of each of Nations Value
Portfolio, Nations Disciplined Equity Portfolio and Nations Balanced Assets
Portfolio; .90% of the average daily net assets of Nations International Growth
Portfolio; .85% of the average daily net assets of Nations Marsico Focused
Equities Portfolio and .85% of the average daily net assets of Nations Marsico
Growth & Income Portfolio.
For the services provided pursuant to a sub-advisory agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .10% of Nations Managed Index Portfolio's and Nations Managed SmallCap
Index Portfolio's average daily net assets; and .25% of Nations Value
Portfolio's, Nations Balanced Assets Portfolio's, and Nations Disciplined Equity
Portfolio's average daily net assets.
For services provided pursuant to a sub-advisory agreement, Gartmore is entitled
to receive from NBAI sub-advisory fees, computed daily and paid monthly at the
annual rate of .70% of Nations International Growth Portfolio's average daily
net assets.
For the services provided pursuant to a sub-advisory agreement, NBAI will pay
Marsico Capital sub-advisory fees, computed daily and paid monthly, at the
annual rate of .45% of the average daily net assets of Nations Marsico Focused
Equities Portfolio and .45% of the average daily net assets of Nations Marsico
Growth & Income Portfolio.
From time to time, NBAI (and/or TradeStreet and/or Gartmore and/or Marsico
Capital) may waive or reimburse (either voluntarily or pursuant to applicable
state limitations) advisory fees or expenses payable by a Portfolio.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Managed Index Portfolio and
Nations Managed SmallCap Index Portfolio. He has been Portfolio Manager for
these Portfolios since their inception. Prior to assuming his position with
TradeStreet in 1996, he was Vice President and Structured Products Manager for
the Investment Management Group at NationsBank. He has worked in the investment
community since 1990. His past experience includes portfolio management,
derivatives management and quantitative analysis for the Investment Management
Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden received a B.B.A.
in Finance from Belmont University. He is a Chartered Financial Analyst
candidate and a member of Chicago Quantitative Alliance, the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Jeffrey C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Disciplined Equity Portfolio. Mr. Moser
has been with TradeStreet since 1996 and Portfolio Manager for Nations
Disciplined Equity Portfolio since the inception of the Portfolio. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Moser
has worked for the Investment Management Group at NationsBank since 1983 where
his responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Portfolio since its inception. Mr. O'Neill joined Gartmore as a Senior
Investment Manager on the Global Portfolio Team in 1981 with responsibility for
a variety of specialized global funds, including resource funds. Mr. O'Neill
began his career with Royal Insurance in 1970 as an investment analyst
specializing in United Kingdom research. He then expanded his field of expertise
to include management of global equities, and in 1978 he moved to Antony Gibbs &
Sons where he was appointed as a fund manager, specializing in global equities.
Mr. O'Neill graduated from Glasgow University in 1969 with a MA Honours degree
in Political Economy.
Sharon M. Herrmann is a Director of Equity Management for TradeStreet and Senior
Portfolio Manager for Nations Value Portfolio. Ms. Herrmann has been the
Portfolio Manager for Nations Value Portfolio since its inception. Prior to
assuming her position with TradeStreet, she was Senior Vice President and
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Herrmann has worked for the Investment Management Group at NationsBank since
1981 where her responsibilities included fund management and institutional
portfolio management. She attended Virginia Wesleyan College. Ms. Herrmann holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Julie L. Hale is a Senior Product Manager, Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Balanced Assets Portfolio. Ms. Hale has
been Portfolio Manager for the Nations Balanced Assets Portfolio since its
inception. Prior to assuming her position with TradeStreet, she was Vice
President and Senior Portfolio Manager for the Investment Management
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Group at NationsBank. She has worked in the investment community since 1981. Her
past experience includes research analysis and portfolio management for
Mercantile Safe Deposit and Trust, and National City Bank. Ms. Hale received a
B.S. in Business and Finance from Mount St. Mary's College and an M.B.A. from
Kent State University. She holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Security Analysts, Inc. She is also a member of
the National Association for Petroleum Investment Analysts and the World Affairs
Council of Washington, D.C.
Mr. Marsico manages the investment program of Nations Marsico Focused Equities
Portfolio and Nations Marsico Growth & Income Portfolio and is primarily
responsible for the day-to-day management of the Portfolios. Prior to forming
Marsico Capital, Mr. Marsico served as Portfolio Manager of the Janus Twenty
Fund from January 31, 1988 through August 11, 1997 and served in the same
capacity for the Janus Growth and Income Fund from May 31, 1991 through August
11, 1997. The average annual returns for the Janus Twenty Fund and the Janus
Growth and Income Fund ("Janus Funds") from the date on which Mr. Marsico began
serving as Portfolio Manager of each Janus Fund through August 7, 1997 (the last
date for which performance information is available) were 22.38% and 21.19%,
respectively. On August 11, 1997, the date on which Mr. Marsico ceased serving
as the Portfolio Manager to both the Janus Twenty Fund and the Janus Growth and
Income Fund, the Janus Twenty Fund had approximately $6 billion in net assets,
and the Janus Growth and Income Fund had approximately $1.7 billion in net
assets. As Executive Vice President and Portfolio Manager of the Janus Twenty
Fund and the Janus Growth and Income Fund, Mr. Marsico had full discretionary
authority over the selection of investments for those funds. Average annual
returns for the one-year, three-year and five-year periods ended August 7, 1997
and for the period during which Mr. Marsico managed those funds compared with
the performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
Janus Janus
Twenty Growth and S&P 500
Fund (a) Income Fund (a) Index (b)
-------- --------------- -------------
<S> <C> <C> <C>
One Year (8/8/96- 48.21% 47.77% 46.41%
8/7/97)
Three Years (8/11/94- 32.07% 31.13% 30.63%
8/7/97)
Five Years (8/13/92- 20.02% 21.16% 20.98%
8/7/97)
During Period of 22.38% 21.19% Janus Twenty:
Management by 18.20%(c)
Mr. Marsico (through Janus Growth
8/7/97) and Income:
18.59%(d)
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) The S&P 500 Index is an unmanaged index of common stocks that is considered
to be generally representative of the United States stock market. The S&P
500 Index is adjusted to reflect reinvestment of dividends.
(c) This figure represents the average annual return of the S&P 500 Index during
the period that Mr. Marsico managed the Janus Twenty Fund through August 7,
1997.
(d) This figure represents the average annual return of the S&P 500 Index during
the period that Mr. Marsico managed the Janus Growth and Income Fund through
August 7, 1997.
The Janus Twenty Fund has substantially similar investment policies, strategies,
and objectives as those of Nations Marsico Focused Equities Portfolio, while the
investment policies, strategies, and objectives of the Janus Growth and Income
Fund are substantially similar to those of Nations Marsico Growth & Income
Portfolio. Historical performance is not indicative of future performance. For a
majority of the periods shown above, the expenses of the Janus Twenty Fund and
the Janus Growth and Income Fund were lower than the anticipated expenses of
Nations Marsico Focused Equities Portfolio and Nations Marsico Growth & Income
Portfolio, respectively. Higher expenses, of course, would have resulted in
lower performance. The Janus Twenty Fund and the Janus Growth and Income Fund
are separate funds and their historical performance is not indicative of the
potential performance of Nations Marsico Focused Equities Portfolio and Nations
Marsico Growth & Income Portfolio, respectively. The Janus Twenty Fund and the
Janus Growth and Income Fund were the only investment vehicles that Mr. Marsico
managed during the period he was employed at Janus Capital Corporation that have
substantially similar objectives, policies, and strategies as those of the
Funds. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Morrison & Foerster LLP, counsel to the Trust and special counsel to NationsBank
has advised the Trust and NationsBank that NationsBank and its affiliates may
perform the services contemplated by the Investment Advisory Agreement and this
Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such federal or state statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any of such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
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<PAGE>
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Portfolios, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Portfolios.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Trust
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Portfolios including performing the calculations necessary to determine net
asset value per share and dividends, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Portfolios. For the services rendered pursuant to the
Administration and Co-Administration Agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to .10% of each
Portfolio's average daily net assets.
NBAI serves as sub-administrator for the Trust pursuant to a Sub-Administration
Agreement. Pursuant to the terms of the Sub-Administration Agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Portfolios' administrative operations. For providing such services, NBAI
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Portfolios' average daily net assets.
Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer. The
Trust has entered into distribution agreements with Stephens which provide that
Stephens has the exclusive right to distribute shares of the Portfolios.
Stephens may pay service fees or commissions to institutions which assist
customers in purchasing shares of the Portfolios.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all the Portfolios, except Nations International Growth Portfolio.
NationsBank of Texas is located at 1401 Elm Street, Dallas, Texas 75202, and is
a wholly owned subsidiary of NationsBank Corporation. In return for providing
custodial services to the Portfolios, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds or Portfolios in the Nations Funds Family; and (ii)
$6,000 per annum, to be paid in equal monthly payments, for custodian services
for each additional portfolio above 50 Funds or Portfolios.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of Nations International Growth Portfolio.
BONY has entered into an agreement with each of the Portfolios and NationsBank
of Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for
the assets of the Portfolios except Nations International Growth Portfolio for
which it serves as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services to the Portfolios
and the other Funds in the Nations Funds Family. BONY receives, in addition to
out of pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum
on the aggregate net assets of all Nations' Non-Money Market Funds or Portfolios
up to $10 billion; and (ii) 1/2 of one basis point on the excess, including all
Nations' Money Market Funds or Portfolios.
First Data serves as transfer agent (the "Transfer Agent") for the Portfolios.
The Transfer Agent is located at One Exchange Place, Boston, Massachusetts
02109.
Price Waterhouse LLP serves as independent accountant to the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Portfolio are deducted from the
Portfolio's total accrued income before dividends are declared. These expenses
include, but are not limited to: fees paid to the Adviser, Stephens and First
Data; taxes; interest; fees (including fees paid to trustees and officers);
federal and state securities registration and qualification fees, if any;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, Stephens or First Data
under their respective agreements with the Trust; and any extraordinary
expenses. Any general expenses of the Trust that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of the Trust or in such other manner as the Board of Trustees deems appropriate.
15
<PAGE>
- --------------------------------------------------------------------------------
Organization And History
The Portfolios are members of the Nations Funds Family, which consists of
Nations Annuity Trust, Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Institutional Reserves and Nations LifeGoal Funds,
Inc. The Nations Funds Family currently has more than 62 distinct investment
portfolios and total assets in excess of $30 billion.
NATIONS ANNUITY TRUST: Nations Annuity Trust was organized as a Delaware
business trust on November 24, 1997. Nations Annuity Trust's fiscal year end is
December 31.
Each share of the Trust is without par value, represents an equal proportionate
interest in the related fund with other shares of the same class, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such fund as are declared in the discretion of the Trust's
Board of Trustees. The Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each Portfolio of the Trust will vote in the aggregate and not by Portfolio, and
shareholders of each Portfolio will vote in the aggregate and not by class
except as otherwise expressly required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of
shareholders of a particular Portfolio or class. See the SAI for examples of
when the Investment Company Act of 1940 (the "1940 Act") requires voting by
Portfolio.
The Trust does not presently intend to hold annual meetings except as required
by the 1940 Act. Shareholders will have the right to remove Trustees. The
Trust's By-Laws provide that special meetings of shareholders shall be called at
the written request of the shareholders entitled to vote at least 10% of the
outstanding shares of the Trust entitled to be voted at such meeting. Individual
holders of Contracts are not the "shareholders" of or "investors" in the
Portfolios. The Participating Insurance Companies and their separate accounts
are deemed the shareholders or investors. However, it is anticipated that the
Participating Insurance Companies will pass through voting rights to the holders
of Contracts. For a discussion of voting rights of holders of Contracts, please
see the accompanying prospectus for the Participating Insurance Companies.
About Your Investment
- --------------------------------------------------------------------------------
How To Buy Shares
Portfolio shares are made available to serve as the underlying investment
vehicles for variable annuity and variable life insurance separate accounts
issued by Participating Insurance Companies. Shares of the Portfolios are sold
at net asset value without the imposition of a sales charge. The separate
accounts of the Participating Insurance Companies place orders to purchase and
redeem shares of the Portfolios based on, among other things, the amount of
premium payments to be invested and the amount of surrender and transfer
requests to be effected on that day pursuant to the contracts.
Although this Prospectus discusses the Portfolios being made available to serve
as the underlying investment vehicles for variable life insurance separate
accounts, it is not presently contemplated that the Portfolios will accept such
investments. In addition, in no instance will the Portfolios be made available
to life insurance separate accounts without the Trust having received any
necessary SEC consents or approvals. It is conceivable that in the future it may
be disadvantageous for variable annuity separate accounts and variable life
insurance separate accounts to invest in the Portfolios simultaneously. Although
the Trust and the Portfolios do not currently foresee any such disadvantages
either to variable annuity contract owners or variable life insurance policy
owners, the Trust's Board of Trustees intends to monitor events in order to
identify any material conflicts between such contract owners and policy owners
and to determine what action, if any, should be taken in response thereto. If
the Board of Trustees were to conclude that separate funds should be established
for variable life and variable annuity separate accounts, the variable life and
variable annuity contract holders would not bear any expenses attendant to the
establishment of such separate funds.
Purchases of the Portfolios may be effected on days on which the New York Stock
Exchange (the "Exchange") is open for business (a "Business Day").
The Trust and Stephens reserve the right to reject any purchase order. The
issuance of Shares is recorded on
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<PAGE>
the books of the Trust, and share certificates are not issued.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Shares in the Portfolios that
are received by Stephens or by the Transfer Agent before the close of regular
trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Portfolio's Custodian.
- --------------------------------------------------------------------------------
How To Redeem Shares
Redemption proceeds are normally remitted in Federal funds wired to the
redeeming Participating Insurance Company within three Business Days following
receipt of the order. It is the responsibility of Stephens to transmit orders it
receives to the Trust. No charge for wiring redemption payments is imposed by
the Trust. Redemption orders are effected at the net asset value per share next
determined after acceptance of the order by Stephens or by the Transfer Agent.
The Trust may redeem shares involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
- --------------------------------------------------------------------------------
Shareholder Servicing and Distribution Plan
The Portfolios have adopted a Shareholder Servicing and Distribution Plan (the
"Servicing and Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act
under which the Portfolios may pay banks, broker/dealers, Participating
Insurance Companies (as defined in the Prospectus) or other financial
institutions that have entered into a Sales Support Agreement with the
Distributor ("Selling Agents") or a Shareholder Servicing Agreement with the
Trust ("Servicing Agents") (together with Selling Agents ("Agents")) for certain
expenses that are incurred by the Agents in connection with sales support and
shareholder support services that are provided by the Agents. Payments under the
Servicing and Distribution Plan will be calculated daily and paid monthly at a
rate not exceeding 0.25% (on an annualized basis) of the average daily net asset
value of the Shares beneficially owned through the ownership of Contracts by
customers with whom the Agents have a relationship. Under the Servicing and
Distribution Plan, the shareholder services provided by Servicing Agents may
include general shareholder liaison services, processing purchases and
redemption requests; processing dividend and distribution payments; providing
sales information periodically to customers, including information showing their
Contracts' positions in the Portfolios; providing sub-accounting; responding to
inquiries from customers; arranging for bank wires; and providing such other
similar services as may be reasonably requested. Under the Servicing and
Distribution Plan, the Trust may make payments in connection with any activity
which is primarily intended to result in the sale of the Shares, including, but
not limited to, expenses of organizing and conducting sales seminars, printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental payments
to the Trust's Distributor and the cost of administering this Servicing and
Distribution Plan, as well as the shareholder servicing activities described
above.
- --------------------------------------------------------------------------------
How The Portfolios Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Portfolios are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.
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How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid annually. Each Portfolio's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Shares of the Portfolios are eligible to receive dividends when declared,
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of shares will be reduced by the amount of any dividend or
distribution. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
are paid in the form of additional shares of the same Portfolio unless the
investor has elected prior to the date of distribution to receive payment in
cash.
TAX INFORMATION
Each of the Portfolios intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). In
general, such qualification relieves a Portfolio of liability for Federal income
tax to the extent its net investment income and capital gains are distributed
annually in accordance with the Code. Each of the Portfolios intends to annually
distribute substantially all of its net investment income and capital gains.
The Code requires investments of a "segregated asset account," such as the
separate accounts of the Participating Insurance Companies, to be "adequately
diversified," in accordance with Treasury Regulations, in order for the holders
of the variable annuity contracts or variable life insurance policies underlying
the account to receive tax-deferred treatment on such annuities or policies,
which treatment is generally given to holders of annuities or life insurance
policies. Subject to certain conditions, shares of a regulated investment
company will not be treated as a single investment for purposes of the "adequate
diversification" test. Instead, the segregated asset account will be treated as
if it is the owner of its proportionate share of each of the assets of the
regulated investment company. Each Portfolio intends to satisfy the relevant
conditions of the Code and Treasury Regulations at all times so that shares of
such Portfolio held in a separate account of a Participating Insurance Company,
and the variable annuity contracts and variable life insurance policies
underlying such account, may qualify for favorable tax treatment under the Code.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Portfolio on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI. For a discussion of Federal income taxation of separate accounts of
life insurance companies, see the prospectuses for the Participating Insurance
Companies that accompany this Prospectus.
- --------------------------------------------------------------------------------
General Information
This Prospectus and the SAI omit certain information contained in the
Registration Statement that the Portfolios have filed with the SEC and reference
is hereby made to the Registration Statement and its exhibits and amendments.
The Registration Statement and its exhibits and amendments are available for
examination at the SEC's Washington, D.C. office.
18
<PAGE>
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Portfolio may invest. The "How Objectives Are Pursued" section of this
Prospectus identifies each Portfolio's permissible investments, and the SAI
contains more information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of residential mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Portfolio may invest
may include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
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.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to a
Portfolio.
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.
Collateralized Mortgage Obligations or "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 herein to CMOs will include multi-class pass-through securities.
Payments of principal and interest on the Mortgage Assets, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distribution on the multi-class pass-through securities.
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Moreover, 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. A Portfolio 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. A Portfolio 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, a Portfolio 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.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity and duration of the
securities. For additional information concerning mortgage-backed securities,
see the Trust's SAI.
The mortgage-backed securities in which the Portfolios invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the
Portfolios also may be subject to credit risk. Credit risk is the risk that the
issuers of securities in which a Portfolio invests may default in the payment of
principal and/or interest. Any such defaults or adverse changes in an issuer's
financial condition or credit rating may adversely affect the value of the
Portfolios' portfolio investments and, hence, the value of your investment in
the corresponding Portfolio.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certif-
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icate of title to each vehicle financed, pursuant to the obligations underlying
the asset-backed securities, usually is not amended to reflect the assignment of
the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on those securities. In addition, various state and Federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and Federal consumer
credit laws, many of which give such holders the right to set off certain
amounts against balances owed on the credit card, thereby reducing the amounts
paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the card
holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Portfolios (except Nations
International Growth Portfolio) will limit their investments in bank obligations
so they do not exceed 25% of each Portfolio's total assets at the time of
purchase.
U.S. dollar denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Portfolio borrows money, the net asset value of a share may
be subject to greater fluctuation until the borrowing is paid off. The
Portfolios may borrow money from banks for temporary purposes in amounts of up
to one-third of their respective total assets, provided that borrowings in
excess of 5% of the value of the Portfolios' respective total assets must be
repaid prior to the purchase of portfolio securities. Pursuant to line of credit
arrangements, certain of the Portfolios may borrow primarily for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Portfolio invests in a reverse repurchase agreement, it
sells a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, certain of the Portfolios
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements. Generally, the effect of such a transaction
is that a Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Portfolios of the reverse repurchase transaction is less
than the cost of obtaining the cash otherwise.
At the time a Portfolio enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Portfolios 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
Portfolios' 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 Portfolios' obligation to repurchase the securities. In addition, there is a
risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. A Portfolio only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if the
Portfolio does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940
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Act, the Portfolios are required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Portfolio of mortgage-backed
or other asset-backed securities, together with a commitment to purchase
similar, but not identical, securities at a future date, at the same price. In
addition, a Portfolio is paid a fee as consideration for entering into the
commitment to purchase. If the broker/dealer to whom a Portfolio sells the
security becomes insolvent, the Portfolio's right to purchase or repurchase the
security may be restricted; the value of the security may change adversely over
the term of the dollar roll; the security that the Portfolio is required to
repurchase may be worth less than the security that the Portfolio originally
held, and the return earned by the Portfolio with the proceeds of a dollar roll
may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks.
Investments by a Portfolio in commercial paper will consist of issues rated in a
manner consistent with such Portfolio's investment policies and objective. In
addition, a Portfolio may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Portfolio. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable and floating rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Portfolios
may invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Portfolio's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Portfolio's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Portfolio's share
price and yield depend, in part, on the maturity and quality of its debt
instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Portfolios may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Portfolio either enters into these transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or uses forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Portfolio
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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
A Portfolio will generally enter into forward currency exchange contracts only
under two circumstances: (i) when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, to "lock" in
the U.S. dollar price of the security; and (ii) when the Adviser believes that
the currency of a particular foreign country may experience a substantial
movement against another currency. Under certain circumstances, the Portfolio
may commit a substantial portion of its portfolio to the execution of these
contracts. The Adviser will consider the effects such a commitment would have on
the investment program of the Portfolio and the flexibility of the Portfolio to
purchase additional securities. Although forward contracts will be used
primarily to protect the Portfolio from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Portfolio to special
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investment risks, including future political and economic developments, the
possible imposition of withholding taxes on income (including interest,
distributions and disposition proceeds), possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Portfolio may be subject to
greater fluctuation in price than securities of domestic companies.
The Portfolios may invest indirectly in the securities of foreign issuers
through sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Portfolios to
financial or other reports from the issuer, to which it would be entitled as the
owner of sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in
registered form, are designed for use in the U.S. securities market. GDRs are
designed for use in both the U.S. and European securities markets. EDRs, in
bearer form, are designed for use in European securities markets. ADRs, ADSs,
GDRs and EDRs also involve certain risks of other investments in foreign
securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Portfolios may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Portfolio against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Portfolio to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Portfolio could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Portfolio may
not purchase put and call options which are traded on a national stock exchange
in an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the Trust's SAI.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Portfolio may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Portfolio guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by the Adviser. 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. Also, a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or
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less, at which point the GIC may be considered to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Portfolios will not hold
more than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Portfolio sells its shares. The Adviser will take reasonable steps
to bring the Portfolios into compliance with this policy if the level of
illiquid investments exceeds 15% of the Portfolios' respective net assets.
Repurchase agreements, time deposits and GICs that do not provide for payment to
a Portfolio within seven days after notice, and illiquid restricted securities
are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Portfolios may purchase securities that are not registered under the Securities
Act of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Portfolios' Board of
Trustees or the Adviser acting under guidelines approved and monitored by the
Portfolios' Board, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Portfolio holding such securities may increase during such period.
INDEXED/STRUCTURED SECURITIES: Indexed/structured
securities are typically short- to intermediate-term debt securities whose value
at maturity or interest rate is linked to currencies, interest rates, equity
securities, indices, commodity prices or other financial indicators. Such
securities may be positively or negatively indexed (i.e., their value may
increase or decrease if the reference index or instrument appreciates).
Indexed/structured securities may have return characteristics similar to direct
investments in the underlying instruments and may be more volatile than the
underlying instruments. The Fund bears the market risk of an investment in the
underlying instruments, as well as the credit risk of the issuer.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Portfolios may enter
into various hedging transactions, such as interest rate swaps and the purchase
or sale of interest rate caps and floors. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest, E.G., an exchange of floating-rate payments for
fixed-rate payments. A Portfolio will enter into a swap transaction on a net
basis, I.E. the payment obligations of the Portfolio and the counterparty will
be netted out with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payment obligations. A Portfolio will segregate, on a
daily basis, cash or liquid high quality debt securities with a value at least
equal to the Portfolio's net obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Portfolio primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Portfolio anticipated purchasing at a
later date rather than for speculative purposes. A Portfolio will not sell
interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Certain of the Portfolios may invest in lower-rated
debt securities. Lower rated, high-yielding securities are those rated "Ba" or
"B" by Moody's or "BB" or "B" by S&P which are commonly referred to as "junk
bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Nations
Marsico Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio
will not purchase debt securities rated below "CCC-" by S&P or "Caa" by Moody's.
Subsequent to its purchase by a Portfolio, an issue of debt securities may cease
to be rated, or its ratings may be reduced below the minimum rating required for
purchase by a Portfolio. The Adviser will consider such an event in determining
whether a Portfolio should continue to hold the security. The Portfolio may also
purchase unrated bonds of foreign and domestic issuers.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Portfolios' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by
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a Portfolio to value its portfolio securities, and a Portfolio's ability to
dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to serve their payment obligations, meet projected goals,
or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Portfolio's policies
regarding lower-rated debt securities is not fundamental and may be changed at
any time without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Portfolio may invest in securities issued by
other investment companies to the extent that such investments are consistent
with the Portfolio's investment objective and policies and permissible under the
1940 Act. As a shareholder of another investment company, a Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Portfolio bears directly
in connection with its own operations. Pursuant to an exemptive order issued by
the SEC, the Nations' Non-Money Market Portfolios may purchase shares of
Nations' Money Market Portfolios.
PASSIVE FOREIGN INVESTMENT COMPANIES: Passive foreign investment companies
("PFICs") are any foreign corporations which generate certain amounts of passive
income or hold certain amounts of assets for the production of passive income.
Passive income includes dividends, interest, royalties, rents and annuities.
Income tax regulations may require the Fund to recognize income associated with
the PFIC prior to the actual receipt of any such income.
PAY-IN-KIND BONDS: Pay-in-kind bonds are debt securities that 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.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("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.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill 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 tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Portfolio and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Portfolio at a specified
price and date or upon demand. This technique offers a method of earning income
on uninvested cash. A risk associated with repurchase agreements is the failure
of the seller to repurchase the securities as agreed, which may cause a
Portfolio to suffer a loss if the market value of such securities declines
before they can be liquidated on the open market. Repurchase agreements with a
duration of more than seven days are considered illiquid securities and are
subject to the limit stated above. A Portfolio may enter into joint repurchase
agreements jointly with other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Portfolios
may lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all out-
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standing loans of a Portfolio may not exceed 33% of the value of its total
assets. Cash collateral received by a Portfolio may be invested in a Nations'
Money Market Fund or Portfolio.
SHORT-TERM TRUST OBLIGATIONS: Certain of the Portfolios may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by such
trusts, either from the underlying securities owned by the trust or pursuant to
other arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula.
STEP COUPON BONDS: Step coupon bonds are debt securities that trade at a
discount from their face value and pay coupon interest. The discount from the
face value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the
Portfolios may purchase and sell futures contracts and related options with
respect to non-U.S. stock indices, non-U.S. interest rates and foreign
currencies, that have been approved by the CFTC for investment by U.S.
investors, for the purpose of hedging against changes in values of a Portfolio's
securities or changes in the prevailing levels of interest rates or currency
exchange rates. The contracts entail certain risks, including but not limited to
the following: no assurance that futures contracts transactions can be offset at
favorable prices; possible reduction of a Portfolio's total return due to the
use of hedging; possible lack of liquidity due to daily limits on price
fluctuation; imperfect correlation between the contracts and the securities or
currencies being hedged; and potential losses in excess of the amount invested
in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Portfolio hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Portfolio might realize could be eliminated by adverse changes in the exchange
rate, or the Portfolio could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. Certain Portfolios may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
featuer, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or
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"forward commitment" basis occurs when the payment for and delivery of
securities takes place at a future date. Because actual payment for and delivery
of such securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
ZERO COUPON BONDS: Zero coupon bonds are debt securities that do not pay
interest at regular intervals, but are issued at a discount from face value. The
discount approximates the total amount of interest the security will accrue from
the date of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
- --------------------------------------------------------------------------------
Appendix B -- Description Of Ratings
The following summarizes the highest eight 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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse conditions, the obligor is not likely to have the capacity
to meet its financial commitments on the obligation; an obligation rated CC
is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
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 eight ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest
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and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest. Bonds that are rated Ca represent obligations that
are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be 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 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.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess
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overwhelming safety characteristics are given a "plus" (+) designation.
SP-2 -- 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:
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+.
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.
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.
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.
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.
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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 ratings used by 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+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
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NATIONS ANNUITY TRUST
Statement of Additional Information
Nations Balanced Assets Portfolio
Nations Disciplined Equity Portfolio
Nations International Growth Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Marsico Focused Equities Portfolio
Nations Marsico Growth & Income Portfolio
Nations Value Portfolio
February ____, 1998
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the shares representing interests in the above listed
eight investment portfolios (individually, a "Portfolio" and collectively, the
"Portfolios") of Nations Annuity Trust (the "Trust"). This SAI is not a
prospectus, and should be read only in conjunction with the current Prospectus
for the aforementioned Portfolios in which one is interested, dated February __,
1998 ("Prospectus"). All terms used in this SAI that are defined in the
Prospectus will have the same meanings assigned in the Prospectus. Copies of the
Prospectus may be obtained by writing the Trust c/o Stephens Inc., One
NationsBank Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by calling
the Trust at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION ................................................................................ 1
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................................... 1
General Brokerage Policy............................................................. 1
Section 28(e) Standards.............................................................. 4
General.............................................................................. 5
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS ............................................. 6
Additional Investment Limitations ................................................... 6
Asset-Backed Securities.............................................................. 7
Commercial Instruments............................................................... 9
Delayed Delivery Transactions ....................................................... 10
Dollar Roll Transactions ............................................................ 10
Equity Swap Contracts ............................................................... 10
Foreign Currency Transactions ....................................................... 11
Futures, Options and Other Derivative
Instruments ................................................................... 12
Guaranteed Investment Contracts....................................................... 18
Illiquid Securities.................................................................. 18
Interest Rate Transactions .......................................................... 19
Lower Rated Debt Securities.......................................................... 19
Options on Currencies................................................................ 20
Real Estate Investment Trusts........................................................ 20
Repurchase Agreements ............................................................... 21
Reverse Repurchase Agreements ....................................................... 21
Risk Factors Associated with Futures and Options Transactions ....................... 21
Securities Lending................................................................... 23
Short Sales.......................................................................... 24
Special Situations................................................................... 24
Stand-By Commitments ................................................................ 24
Variable- and Floating-Rate Instruments ............................................. 25
When-Issued Purchases and Forward Commitments ...................................... 25
NET ASSET VALUE.............................................................................. 26
Purchases and Redemptions............................................................ 26
Net Asset Value Determination........................................................ 26
DESCRIPTION OF SHARES........................................................................ 27
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 28
General.............................................................................. 28
Excise Tax .......................................................................... 29
Taxation of Portfolio Investments.................................................... 29
Taxation of a Separate Account of a Participating Insurance Company.................. 30
Federal Income Tax Rates............................................................. 31
Other Matters........................................................................ 31
TRUSTEES AND OFFICERS........................................................................ 31
Nations Funds Retirement Plan........................................................ 34
Nations Funds Deferred Compensation Plan ........................................... 35
i
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<CAPTION>
<S> <C>
Compensation Table................................................................... 35
Shareholder and Trustee Liability ................................................... 36
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY AND SHAREHOLDER SERVICING
AGREEMENTS .................................................................................. 37
Investment Adviser................................................................... 37
Investment Styles.................................................................... 40
Administrator and Co-Administrator................................................... 42
Custodian and Transfer Agent......................................................... 43
Shareholder Servicing and Distribution Plan.......................................... 44
Expenses............................................................................. 44
DISTRIBUTOR ................................................................................. 45
INDEPENDENT ACCOUNTANT AND REPORTS........................................................... 45
COUNSEL...................................................................................... 46
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 46
Yield Calculations................................................................... 46
Total Return Calculations............................................................ 47
MISCELLANEOUS ............................................................................... 48
SCHEDULE A - Description of Ratings........................................................... A-1
SCHEDULE B - Additional Information Concerning Options &
Futures...................................................................................... B-1
SCHEDULE C - Additional Information Concerning Mortgage-
Backed Securities............................................................................ C-1
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INTRODUCTION
Nations Annuity Trust (the "Trust") is a mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors with certain
information concerning the activities of the mutual fund being considered for
investment. This information about the Trust is also included in the
corresponding Prospectus.
The Trust currently consists of eight different investment portfolios,
Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio, Nations
International Growth Portfolio, Nations Managed Index Portfolio, Nations Managed
SmallCap Index Portfolio, Nations Marsico Focused Equities Portfolio, Nations
Marsico Growth & Income Portfolio and Nations Value Portfolio (each a
"Portfolio" and collectively the "Portfolios").
As of the date of this SAI, no shares of the Portfolios have been sold.
As a result, certain financial information and performance data is not available
and thus not included in this SAI.
The Prospectus relating to these Portfolios may be obtained without
charge by written request to the Trust, c/o Stephens, Inc., One NationsBank
Plaza, 33rd Floor, Charlotte, NC 28255. Participating Insurance Companies also
may call toll-free at (800) 321-7854.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Portfolios. TradeStreet Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to all of the Portfolios except Nations Marsico Focused
Equities Portfolio and Nations Marsico Growth & Income Portfolio, which are
sub-advised by Marsico Capital Management, LLC ("Marsico Capital"), and Nations
International Growth Portfolio. Gartmore Global Partners ("Gartmore") serves as
investment sub-adviser to Nations International Growth Portfolio. As used
herein, "Adviser" shall mean NBAI, TradeStreet, Gartmore, and/or Marsico Capital
as the context may require.
This SAI is intended to furnish Participating Insurance Companies with
additional information concerning the Trust and the Portfolios. Some of the
information required to be in this SAI is also included in the Portfolios'
current Prospectus, and, in order to avoid repetition, reference will be made to
sections of the Prospectus. Additionally, the Prospectus and this SAI omit
certain information contained in the registration statement filed with the SEC.
Copies of the registration statement, including items omitted from the
Prospectus and this SAI, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. No investment in the Portfolios
should be made without first reading the Prospectus.
PORTFOLIO TRANSACTIONS AND BROKERAGE
General Brokerage Policy
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for decisions to buy and sell securities for each
Portfolio, for the selection of broker/dealers, for the execution of each
Portfolio's securities transactions, and for the allocation of brokerage fees 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. While the Adviser generally seeks reasonably
competitive commission rates, a Portfolio does not necessarily pay the lowest
commission or spread available. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a negotiated
commission 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,
1
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certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
In placing orders for securities of a Portfolio, the Adviser is
required to give 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 firm, the value and
quality of the services rendered by the firm in this and other transactions and
the reasonableness of the spread or commission, if any.
While the Adviser generally seeks reasonably competitive spreads or
commissions, a Portfolio will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, the Adviser will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of a Portfolio, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Portfolio may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Portfolio. Services furnished by
such brokers may be used by the Adviser in providing investment advisory and
investment management services for the Trust.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees of the Trust. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. 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-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 Portfolio as well as for one or more of the other clients of the
Adviser. Investment decisions for each Portfolio and for the Adviser's other
clients are made with the goal of achieving their respective investment
objectives. It may happen that a particular security is 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 several clients 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. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as far
as a Portfolio is concerned. The Trust believes that over time its ability to
participate in volume transactions will produce superior executions for the
Portfolios.
The portfolio turnover rate for each Portfolio is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
reporting period by the monthly average value of the portfolio securities owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may be affected by cash requirements for
redemption of shares and by requirements
2
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which enable the Portfolios to receive favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions.
The Portfolios 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. A
Portfolio will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be otherwise in the Portfolio's
interests.
The Trust will not execute portfolio transactions through, purchase or
sell portfolio securities from or to the Distributor, the Adviser, the
Administrator, the Co-Administrator, or their respective affiliates acting as
principal (including repurchase and reverse repurchase agreements), except to
the extent permitted by the SEC. In addition, the Trust will not give preference
to correspondents of NationsBank N.A. ("NationsBank") or 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
financial institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or its affiliates, and to
take into account the sale of Portfolio shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Portfolio will not
purchase securities during the existence of any underwriting or selling group
relating thereto of which the Distributor, the Adviser, Administrator, the
Co-Administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Portfolios may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
persons affiliated with the Trust are prohibited from dealing with the Trust as
a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC. Each of the Portfolios may
purchase securities from underwriting syndicates of which NationsBank or any of
its affiliates is a member under certain conditions, in accordance with the
provisions of a rule adopted under the 1940 Act and any restrictions imposed by
the Board of Governors of the Federal Reserve System.
Investment decisions for each Portfolio are made independently from
those for the Trust's other investment portfolios and other investment companies
and accounts advised or managed by the Adviser. Such other investment
portfolios, investment companies and accounts may also invest in the same
securities as the Portfolios. When a purchase or sale of the same security is
made, at substantially the same time, on behalf of one or more of the Portfolios
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 each Portfolio and
such other investment portfolio, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Portfolio or the size of the position obtained or sold by the
Portfolio. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for the Portfolios with those to be sold or
purchased for other investment portfolios, investment companies or accounts in
executing transactions.
The Adviser may from time to time determine target levels of commission
business to transact with various brokers on behalf of its clients (including
the Trust) over a certain time period. The target levels will be determined
based upon the following factors, among others: (1) the execution services
provided by the broker; (2) the research services provided by the broker; and
(3) the broker's attitude toward and interest in mutual funds in general and in
the Trust and other mutual funds advised by the Adviser in particular. No
specific formula will be used in connection with any of the foregoing
considerations in determining the target levels. However, if a broker has
indicated a certain level of desired commissions in return for certain research
services provided by the broker, this factor will be taken into consideration by
the Adviser.
Subject to the overall objective of obtaining best price and execution
for a Portfolio, the Adviser may also consider sales of shares of such Portfolio
and of the other mutual funds managed or advised by the Adviser as a factor in
the selection of broker/dealers to execute portfolio transactions for the
Portfolios.
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The Adviser will seek, whenever possible, to recapture for the benefit
of a Portfolio any commission, fees, brokerage or similar payments paid by such
Portfolio on portfolio transactions. Normally, the only fees which may be
recaptured are the soliciting dealer fees on the tender of an account's
portfolio securities in a tender or exchange offer.
The Portfolios are not under any obligation to deal with any broker or
group of brokers in the execution of transactions in portfolio securities.
Brokers who provide supplemental investment research to the Adviser may receive
orders for transactions by a Portfolio. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Adviser under its agreements with each Portfolio and the expenses of the Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. Certain research services furnished by broker/dealers may be useful
to the Adviser in connection with its services to other advisory clients,
including other investment companies which it advises. Also, a Portfolio may pay
a higher price for securities or higher commissions in recognition of research
services furnished by broker/dealers.
The Adviser and its affiliates manage several other investment
accounts, some of which may have investment objectives similar to those of one
or more of the Portfolios. It is possible that, at times, identical securities
will be appropriate for investment by one or more of the Portfolios and by one
or more of such investment accounts. The position of each account, however, in
the securities of the same issuer may vary and the length of time that each
account may choose to hold its investment in the securities of the same issuer
may likewise vary. The timing and amount of purchase by each account will also
be determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of a Portfolio and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Adviser. The Adviser may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Simultaneous transactions could, however, adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
In some cases the procedure for allocating securities transactions
among the various investment accounts advised by the Adviser and its affiliates
could have an adverse effect on the price or amount of securities available to a
Portfolio. In making such allocations, the main factors considered by the
Adviser are the respective investment objectives and policies of such advisory
clients, the relative size of holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the judgments of the persons responsible for recommending the
investment.
Section 28(e) Standards
Under Section 28(e) of the Securities Exchange Act of 1934, 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), an 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 provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price paid by a Portfolio 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.
Broker/dealers utilized by the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Portfolios' investment programs. Research services received
from brokers 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; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by specialized services to the
Adviser and to
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the Trust's Trustees with respect to the performance, investment activities,
fees and expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
providing equipment used to communicate research information, arranging meetings
with management of the Trust and providing access to consultants who supply
research information.
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser, as a group, tend to follow a broader universe
of securities and other matters than the Adviser's staff can follow. In
addition, this research provides the Adviser with a diverse perspective on
financial markets. Research services which are provided to the Adviser by
brokers 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
providing such services. In other cases, the research services may be obtainable
from alternative sources in return for cash payments. The Adviser is of the
opinion that because the broker 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 brokers, 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 Portfolios. Similarly, any research services received by the
Adviser through the placement of portfolio transactions of other clients may be
of value to the Adviser in fulfilling its obligations to the Portfolios. 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.
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
Portfolios.
General
Information concerning each Portfolio's investment objective is set
forth in the Prospectus under the heading "About the Portfolios--Objectives."
There can be no assurance that the Portfolios will achieve their objectives. The
principal features of the Portfolios' investment programs and the primary risks
associated with those investment programs are discussed in the Prospectus under
the heading "About the Portfolios--How Objectives are Pursued" and "Appendix
A--Portfolio Securities." The values of the securities in which the Portfolios
invest fluctuate based upon interest rates, foreign currency rates, the
financial stability of the issuer and market factors.
The Portfolios are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the Portfolios back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity basis (purchasing power parity is a method for determining the
relative purchasing power of different currencies by comparing the amount of
each currency required to purchase a typical bundle of goods and services to
domestic markets) and an estimation of short-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).
Pursuant to one of the Trust's fundamental investment restrictions (see
"How Objectives Are Pursued--Investment Limitations" in the Portfolios'
Prospectus), the Trust does not have authority to purchase any securities which
would cause more than 25% of the value of any Portfolio's total assets, at the
time of such purchase, to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that, there is no limitation with respect to investments in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. The
position of the staff of the SEC is that the exclusion with respect to banks may
only be applied to domestic banks. For this purpose, the staff also takes the
position that United States branches of foreign banks and foreign branches of
domestic banks may, if certain conditions are met, be treated as "domestic
banks." The Trust currently intends to consider only obligations of "domestic
banks" to be within the exclusion with respect to banks. For this purpose,
"domestic banks" will be construed by the Trust to
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include: (a) United States branches of foreign banks, to the extent they are
subject to the same regulation as United States banks; and (b) 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.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS
Additional Investment Limitations
The most significant investment restrictions applicable to the
Portfolios' investment programs are set forth in the Prospectus under the
heading "How Objectives Are Pursued--Investment Limitations." Additionally, as a
matter of fundamental policy which may not be changed without a majority vote of
a Portfolio's shareholders (as that term is defined under the heading
"Investment Advisory, Administration, Custody, Transfer Agency and Shareholder
Servicing Agreements" in this SAI) each Portfolio will not:
1. Borrow money or issue senior securities, as defined in the 1940 Act,
except that (a) a Portfolio may borrow money from banks for temporary
purposes in amounts up to one-third of the value of such Portfolio's
total assets at the time of borrowing, provided that borrowings in
excess of 5% of the value of such Portfolio's total assets will be
repaid prior to the purchase of additional portfolio securities by such
Portfolio, (b) a Portfolio may enter into commitments to purchase
securities in accordance with the Portfolio's investment program,
including delayed delivery and when-issued securities, which
commitments may be considered the issuance of senior securities, and
(c) a Portfolio may issue multiple classes of shares in accordance with
SEC regulations or exemptions under the 1940 Act. The purchase or sale
of futures contracts and related options shall not be considered to
involve the borrowing of money or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except short sales against
the box.) For purposes of this restriction, the deposit or payment by
the Portfolio of initial or maintenance margin in connection with
futures contracts and related options and options on securities is not
considered to be the purchase of a security on margin.
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Portfolio's investment program may be
deemed an underwriting. This restriction shall not limit a Portfolio's
ability to invest in securities issued by other registered investment
companies.
4. Invest in real estate or real estate limited partnership interests. (A
Portfolio may, however, purchase and sell securities secured by real
estate, or interests therein, or issued by issuers which invest in real
estate or interests therein.) This restriction does not apply to real
estate limited partnerships listed on a national stock exchange (e.g.,
the New York Stock Exchange).
5. Purchase or sell commodity contracts except that each Portfolio may, to
the extent appropriate under its investment policies, purchase publicly
traded securities of a company engaging in whole or in part in such
activities, enter into futures contracts and related options, engage in
transactions on a when-issued or forward commitment basis, and enter
into forward currency contracts in accordance with its investment
policies.
In addition, certain non-fundamental investment restrictions which may
be changed by a majority vote of the Board of Trustees at any time and without
approval of the shareholders, are also applicable to the Portfolios, including
the following:
1. No Portfolio will purchase securities of a company for the purpose of
exercising control.
2. No Portfolio will invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements, time deposits
and Guaranteed Investment Contracts ("GICs") with maturities in
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excess of seven days, illiquid restricted securities, and other
securities which are not readily marketable. For purposes of this
restriction, illiquid securities shall not include securities which may
be resold under Rule 144A and Section 4(2) of the Securities Act of
1933 that the Board of Trustees, or its delegate, determines to be
liquid, based upon the trading markets for the specific security.
3. No Portfolio will mortgage, pledge or hypothecate any assets except to
secure permitted borrowings and then only in an amount up to one-third
of the value of a Portfolio's total assets at the time of borrowing.
For purposes of this limitation, collateral arrangements with respect
to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and
variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.
4. No Portfolio will invest in securities of other investment companies,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets and except to the extent otherwise permitted by
the 1940 Act.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities, or assets of, or borrowings on behalf of, a
Portfolio.
Asset-Backed Securities
In General. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Portfolio
may invest, may include those issued or guaranteed by Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"). Such certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage
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bankers, commercial banks and savings and loan associations. Such mortgage loans
may have fixed or adjustable rates of interest.
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.
The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) certificates may be
issued at a premium or discount, rather than at par; (ii) certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the certificates; and (iv) the actual yield of each certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA certificate purchased at a premium may result in a loss to the
Portfolio.
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.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (such
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 herein to CMOs will include multi-class
pass-through securities. Payments of principal of, and interest on, the Mortgage
Assets, and any reinvestment income thereon, provide for the Portfolios to pay
debt service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, 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. A Portfolio 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.
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, a Portfolio 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.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
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interest and have the effect of reducing future payments. Estimated average life
will be determined by the Adviser and used for the purpose of determining the
average weighted maturity and duration of the securities.
Non-Mortgage Asset-Backed Securities. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
The development of non-mortgage-backed securities is at an early stage
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities is not as well developed as the market for U.S. Government issued
mortgaged-backed securities. As stated above, the Adviser, as adviser to each
Portfolio, intends to limit its purchases of mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities to
securities that are readily marketable at the time of purchase.
Commercial Instruments
Commercial instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. Investments by a Portfolio in
commercial paper will consist of issues rated in a manner consistent with such
Portfolio's investment policies and objectives. In addition, the Portfolios may
acquire unrated commercial paper and corporate bonds that are determined by the
Adviser at the time of purchase to be of comparable quality to rated instruments
that may be acquired by such Portfolios.
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Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Variable-rate instruments acquired by a Portfolio will be rated
at a level consistent with such Portfolio's investment objectives and policies
of high quality as determined by a major rating agency or, if not rated, will be
of comparable quality as determined by the Adviser.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable- or floating-rate
instrument purchased by a Portfolio, such Portfolio may, from time to time as
specified in the instrument, demand payment of the principal or may resell the
instrument to a third party. The absence of an active secondary market, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer defaulted on its payment obligation or during periods when a Portfolio is
not entitled to exercise its demand rights, and a Portfolio could, for these or
other reasons, suffer a loss. A Portfolio may invest in variable- and
floating-rate instruments only when the Adviser deems the investment to involve
minimal credit risk. If such instruments are not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will be deemed to have a maturity equal to the longer of, the
period remaining to the next interest rate adjustment or, the demand notice
period specified in the instrument.
Delayed Delivery Transactions
In a delayed delivery transaction, the Portfolio relies on the other
party to complete the transaction. If the transaction is not completed, the
Portfolio may miss a price or yield considered to be advantageous.
Dollar Roll Transactions
Certain Portfolios may enter into "dollar roll" transactions, which
consist of the sale, by a Portfolio, to a bank or broker/dealer (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. A Portfolio receives a fee from the
counterparty as consideration for entering into the commitment to purchase.
Dollar rolls may be renewed over a period of several months with a different
repurchase price and a cash settlement made at each renewal without physical
delivery of securities. Moreover, the transaction may be preceded by a firm
commitment agreement pursuant to which the Portfolio agrees to buy a security on
a future date.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Portfolio's right to
purchase from the counterparty might be restricted. Additionally, the value of
such securities may change adversely before the Portfolio is able to purchase
them. Similarly, the Portfolio may be required to purchase securities in
connection with a dollar roll at a higher price than may otherwise be available
on the open market. Since, as noted above, the counterparty is required to
deliver a similar, but not identical security to the Portfolio, the security
that the Portfolio is required to buy under the dollar roll may be worth less
than an identical security. Finally, there can be no assurance that the
Portfolio's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.
Equity Swap Contracts
The counterparty to an Equity Swap Contract will typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty will
generally agree to pay a Portfolio the amount, if any, by which the notional
amount of the Equity Swap Contract would have increased in value had it been
invested in the stocks comprising the S&P 500 Index in proportion to the
composition of the Index, plus the dividends that would have been received on
those stocks. A Portfolio will agree to pay to the counterparty a floating rate
of interest (typically the London InterBank Offered Rate) on the notional amount
of the Equity Swap Contract plus the amount, if any, by which that notional
amount would have decreased in value had it been invested in such stocks.
Therefore, the
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return to a Portfolio on any Equity Swap Contract should be the gain or loss on
the notional amount plus dividends on the stocks comprising the S&P 500 Index,
less the interest paid by the Portfolio on the notional amount. A Portfolio will
only enter into Equity Swap Contracts on a net basis, (i.e., the two parties'
obligations are netted out, with the Portfolio paying or receiving, as the case
may be, only the net amount of any payments). Payments under the Equity Swap
Contracts may be made at the conclusion of the contract or periodically during
its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Portfolio will be limited to contractual remedies pursuant to the agreements
related to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Portfolio will succeed in pursuing
contractual remedies. A Portfolio thus assumes the risk that it may be delayed
in, or prevented from, obtaining payments owed to it pursuant to Equity Swap
Contracts. The Adviser will closely monitor the credit of Equity Swap Contract
counterparties in order to minimize this risk.
Certain Portfolios may from time to time enter into the opposite side
of Equity Swap Contracts (i.e., where a Portfolio is obligated to pay the
increase (net of interest) or receive the decrease (plus interest) on the
contract) to reduce the amount of the Portfolio's equity market exposure
consistent with the Portfolio's objectives. These positions are sometimes
referred to as Reverse Equity Swap Contracts.
Equity Swap Contracts will not be used to leverage a Portfolio. A
Portfolio will not enter into any Equity Swap Contract or Reverse Equity Swap
Contract unless, at the time of entering into such transaction, the unsecured
senior debt of the counterparty is rated at least "A" by Moody's Investor
Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). Since the
SEC considers Equity Swap Contracts and Reverse Equity Swap Contracts to be
illiquid securities, a Portfolio will not invest in Equity Swap Contracts or
Reverse Equity Swap Contracts if the total value of such investments together
with that of all other illiquid securities which a Portfolio owns would exceed
15% of the Portfolio's total assets.
The Adviser does not believe that a Portfolio's obligations under
Equity Swap Contracts or Reverse Equity Swap Contracts are senior securities
and, accordingly, the Portfolio will not treat them as being subject to its
borrowing restrictions. However, the net amount of the excess, if any, of a
Portfolio's obligations over its respective entitlements with respect to each
Equity Swap Contract and each Reverse Equity Swap Contract will be accrued on a
daily basis and an amount of cash, U.S. Government securities or other liquid
high quality debt securities, having an aggregate market value at least equal to
the accrued excess, will be maintained in a segregated account by the
Portfolio's Custodian.
Foreign Currency Transactions
As described in the Prospectus, certain Portfolios may invest in
foreign currency transactions. Foreign securities 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. A Portfolio may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize the risk to the
Portfolio from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A Portfolio may also purchase and sell foreign currency
futures contracts and related options (see "Purchase and Sale of Currency
Futures Contracts and Related Options" in this SAI). A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date that is individually negotiated and privately traded by currency
traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
traded directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A
Portfolio will direct the Custodian to segregate high grade liquid assets in an
amount at least equal to its obligations under each forward foreign currency
exchange contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Portfolio's
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
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A Portfolio 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 the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Portfolio may enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes 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 Portfolio securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a
Portfolio 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. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Portfolio'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 Portfolio'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 Portfolio's commitments with respect to such contracts. As an
alternative to segregating all or part of such securities, the Portfolio may
purchase a call option permitting the Portfolio 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 Portfolio may purchase a put option
permitting the Portfolio 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.
Futures, Options and Other Derivative Instruments
Futures Contracts in General. A futures contract is an agreement
between two parties for the future delivery of fixed income securities or equity
securities, for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Presently, futures contracts are based on such
debt securities as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities, three-month U.S. Treasury Bills, bank
certificates of deposit, and on indices of municipal, corporate and government
bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Portfolio will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Portfolio must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2%, or less, of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Portfolio that
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engages in futures transactions may receive or be required to pay "variation
margin" as the futures contract becomes more or less valuable. At the time of
delivery of securities pursuant to a futures contract based on securities,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate than the specific security that
provides the standard for the contract. In some (but not many) cases, securities
called for by a futures contract may not have been issued when the contract was
written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
Futures Contracts on Fixed Income Securities and Related Indices. As
noted in the Prospectus, certain Portfolios may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Portfolio may enter into transactions in futures contracts that
are based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Portfolio. For example, a Portfolio may sell
futures contracts in anticipation of a general rise in the level of interest
rates, which would result in a decline in the value of its fixed income
securities. If the expected rise in interest rates occurs, the Portfolio may
realize gains on its futures position, which should offset all or part of the
decline in value of fixed income securities. A Portfolio could protect against
such decline by selling fixed income securities, but such a strategy would
involve higher transaction costs than the sale of futures contracts and, if
interest rates again declined, the Portfolio would be unable to take advantage
of the resulting market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the respective
Portfolios, which hold or intend to acquire long-term debt securities, is to
protect a Portfolio from fluctuations in interest rates without actually buying
or selling long-term debt securities. For example, if long-term bonds are held
by a Portfolio, and interest rates were expected to increase, the Portfolio
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Portfolio. If interest rates did increase, the value of the
debt securities in the Portfolio would decline, but the value of the futures
contracts to the Portfolio would increase at approximately the same rate thereby
keeping the net asset value of the Portfolio from declining as much as it
otherwise would have. When a Portfolio is not fully invested and a decline in
interest rates is anticipated, which would increase the cost of fixed income
securities that the Portfolio intends to acquire, it may purchase futures
contracts. In the event that the projected decline in interest rates occurs, the
increased cost of the securities acquired by the Portfolio should be offset, in
whole or part, by gains on the futures contracts by entering into offsetting
transactions on the contract market on which the initial purchase was effected.
In a substantial majority of transactions involving futures contracts on fixed
income securities, a Portfolio will purchase the securities upon termination of
the long futures positions, but under unusual market conditions, a long futures
position may be terminated without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Portfolio could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio's cash reserves could then be
used to buy long-term bonds in the cash market. Similar results could be
accomplished by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase. However, since
the futures market is more liquid than the cash market, the use of these futures
contracts as an investment technique allows a Portfolio to act in anticipation
of such an interest rate decline without having to sell its portfolio
securities. To the extent a Portfolio enters into futures contracts for this
purpose, the segregated assets maintained by a Portfolio will consist of cash,
cash equivalents or high quality debt securities of the Portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contract and the aggregate value of the initial deposit and variation margin
payments made by the Portfolio with respect to such futures contracts.
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Stock Index Futures Contracts. As described in the Prospectus, certain
Portfolios may sell stock index futures contracts in order to offset a decrease
in market value of its securities, that might otherwise result from a market
decline. A Portfolio may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of securities to be sold. Conversely, a Portfolio may purchase
stock index futures contracts in order to protect against anticipated increases
in the cost of securities to be acquired.
In addition, a Portfolio may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Portfolio expects to narrow the range of industry groups
represented in its portfolio, it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. As such
securities are acquired, the Portfolio's futures positions would be closed out.
A Portfolio may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of its portfolio will decline prior to the
time of sale.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or a "short"
position in the underlying futures contract (i.e., a sale of such futures
contract) in the case of an option to sell (a "put" option), at a fixed price
(the "strike price"), up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
Options on Futures Contracts on Fixed Income Securities and Related
Indices. As described in the Prospectus, certain Portfolios may purchase put
options on futures contracts, in which such Portfolios are permitted to invest,
for the purpose of hedging a relevant portion of their portfolios against an
anticipated decline in the values of portfolio securities resulting from
increases in interest rates, and may purchase call options on such futures
contracts as a hedge against an interest rate decline when they are not fully
invested. A Portfolio would write options on these futures contracts primarily
for the purpose of terminating existing positions.
Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. As described in the Prospectus, certain Portfolios
may purchase put options on stock index futures contracts, stock indices or
equity securities for the purpose of hedging the relevant portion of their
portfolio securities against an anticipated market-wide decline or against
declines in the values of individual portfolio securities, and they may purchase
call options on such futures contracts as a hedge against a market advance when
they are not fully invested. A Portfolio would write options on such futures
contracts primarily for the purpose of terminating existing positions. In
general, options on stock indices will be employed in lieu of options on stock
index futures contracts only where they present an opportunity to hedge at lower
cost. With respect to options on equity securities, a Portfolio may, under
certain circumstances, purchase a combination of call options on such securities
and U.S. Treasury Bills. The Adviser believes that such a combination may more
closely parallel movements in the value of the security underlying the call
option than would the option itself.
Further, while a Portfolio generally would not write options on
individual portfolio securities, it may do so under limited circumstances known
as "targeted sales" and "targeted buys," which involve the writing of call or
put options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Portfolio would receive a fee, or a "premium," for the writing
of the option. For example, where the Portfolio seeks to sell portfolio
securities at a "targeted" price, it may write a call option at that price. In
the event that the market rises above the exercise price, it would receive its
"targeted" price, upon the exercise of the option, as well as the premium
income. Also, where it seeks to buy portfolio securities at a "targeted" price,
it may write a put option at that price for which it will receive the premium
income. In the event that the market declines below the exercise price, a
Portfolio would pay
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its "targeted" price upon the exercise of the option. In the event that the
market does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Portfolio could sustain a
loss on the transaction that may not be offset by the premium received. In
addition, a Portfolio may be required to forego the benefit of an intervening
increase or decline in value of the underlying security.
Options and Futures Strategies. The Adviser may seek to increase the
current return of a Portfolio by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in a Portfolio or an increase in the price of
securities that it plans to purchase for a Portfolio. Expenses and losses
incurred as a result of such hedging strategies will reduce a Portfolio's
current return. A Portfolio's investment in foreign stock index futures
contracts and foreign interest rate futures contracts, and related options on
such futures contracts, are limited to only those contracts and related options
that have been approved by the CFTC for investment by U.S. investors.
Additionally, with respect to a Portfolio's investment in foreign options,
unless such options are specifically authorized for investment by order of the
CFTC, or meet the definition of trade options as set forth in CFTC rule 32.4, a
Portfolio will not make these investments.
The ability of a Portfolio to engage in the options and futures
strategies described herein will depend on the availability of liquid markets in
such instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Portfolio will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, a Portfolio's ability to
engage in options and futures transactions may be limited by tax considerations.
Although a Portfolio will only engage in options and futures transactions for
limited purposes, these activities will involve certain risks which are
described below under "Risk Factors Associated with Futures and Options
Transactions." A Portfolio will not engage in options and futures transactions
for leveraging purposes.
Writing Covered Options on Securities. A Portfolio may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objectives. Call options written by a Portfolio give the holder the
right to buy the underlying securities from the Portfolio at a stated exercise
price; put options give the holder the right to sell the underlying security to
the Portfolio at a stated price.
A Portfolio may write only covered options, which means that, so long
as the Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, a
Portfolio will maintain in a separate account cash or short-term U.S. Government
securities with a value equal to or greater than the exercise price of the
underlying securities. A Portfolio may also write combinations of covered puts
and calls on the same underlying security.
A Portfolio will receive a premium from writing a put or call option,
which increases the Portfolio's return in the event the option expires
unexercised or is closed out at a profit. The amount of the premium will
reflect, among other things, the relationship of the market price of the
underlying security to the exercise price of the option, the term of the option
and the volatility of the market price of the underlying security. By writing a
call option, a Portfolio limits its opportunity to profit from any increase in
the market value of the underlying security above the exercise price of the
option. By writing a put option, a Portfolio assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss if the
purchase price exceeds the market value plus the amount of the premium received,
unless the security subsequently appreciates in value.
A Portfolio may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Portfolio will realize
a profit or loss from such transaction if the cost of such transaction is less
or more than the premium received from the writing of the option. In the case of
a put option, any loss so incurred may be partially or entirely offset by
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the premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Portfolio.
Purchasing Put and Call Options on Securities. A Portfolio may purchase
put options to protect its portfolio holdings in an underlying security against
a decline in market value. Such hedge protection is provided during the life of
the put option since a Portfolio, as holder of the put option, is able to sell
the underlying security at the put exercise price regardless of any decline in
the underlying security's market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, a Portfolio will reduce any profit
it might otherwise have realized in its underlying security by the premium paid
for the put option and by transaction costs.
A Portfolio may also purchase call options to hedge against an increase
in prices of securities that it ultimately wants to buy. Such hedge protection
is provided during the life of the call option since the Portfolio, as holder of
the call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Portfolio will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices. A Portfolio
may purchase and sell options on non-U.S. stock indices and stock index futures
as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index 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 such difference between the closing price of the index and the exercise
price of the option, expressed in dollars multiplied by a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike options on specific securities, all
settlements of options on stock indices are in cash and gain or loss depends on
general movements in the stocks included in the index rather than price
movements in particular stocks. A stock index futures contract is an agreement
in which one party agrees to deliver to the other an amount of cash equal to a
specific amount multiplied by the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Portfolio
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it ultimately wants to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of the
Portfolio's index option or futures contract resulting from the increase in the
index. If, on the other hand, the Adviser expects general stock market prices to
decline, a Portfolio might purchase a put option or sell a futures contract on
the index. If that index does in fact decline, the value of some or all of the
equity securities held by the Portfolio may also be expected to decline, but
that decrease would be offset in part by the increase in the value of the
Portfolio's position in such put option or futures contract.
Purchase and Sale of Interest Rate Futures. A Portfolio may purchase
and sell interest rate futures contracts on foreign government securities
including, but not limited to, debt securities of the governments and central
banks of France, Germany, Denmark and Japan for the purpose of hedging fixed
income and interest sensitive securities against the adverse effects of
anticipated movements in interest rates.
A Portfolio may sell interest rate futures contracts in anticipation of
an increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Portfolio will
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fall, thus reducing the net asset value of the Portfolio. This interest rate
risk can be reduced, without employing futures as a hedge, by selling long-term
fixed income securities and either reinvesting the proceeds in securities with
shorter maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Portfolio in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Portfolio's short position in the futures contracts will also tend to
increase, thus offsetting all or a portion of the depreciation in the market
value of the Portfolio's investments that are being hedged. While a Portfolio
will incur commission expenses in selling and closing out futures positions
(which is done by taking an opposite position which operates to terminate the
position in the futures contract), commissions on futures transactions are lower
than transaction costs incurred in the purchase and sale of portfolio
securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Portfolio may purchase and write call and put options on non-U.S.
stock index and interest rate futures contracts. A Portfolio may use such
options on futures contracts in connection with its hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a
Portfolio may purchase put options or write call options on stock index futures,
or interest rate futures, rather than selling futures contracts, in anticipation
of a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Portfolio intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect against possible variations in
foreign exchange rates pending the settlement of securities transactions, a
Portfolio may buy or sell currency futures contracts and related options. If a
fall in exchange rates for a particular currency is anticipated, a Portfolio may
sell a currency futures contract or a call option thereon, or purchase a put
option on such futures contract as a hedge. If it is anticipated that exchange
rates will rise, a Portfolio may purchase a currency futures contract or a call
option thereon or sell (write) a put option to protect against an increase in
the price of securities denominated in a particular currency a Portfolio intends
to purchase. These futures contracts and related options thereon will be used
only as a hedge against anticipated currency rate changes, and all options on
currency futures written by a Portfolio will be covered.
A currency futures contract sale creates an obligation by a Portfolio,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specific price. A currency futures contract purchase
creates an obligation by a Portfolio, as purchaser, to take delivery of an
amount of currency at a specified future time, at a specified price. Although
the terms of currency futures contracts specify actual delivery or receipt, in
most instances the contracts are closed out before the settlement date without
the making or taking of delivery of the currency. Closing out of a currency
futures contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract. If the holder decides not to enter into the contract, the
premium paid for the option is fixed at the point of sale.
The Portfolio will write only covered put and call options on currency
futures. This means that a Portfolio will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. A Portfolio will, so long as it is
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased, maintained by the Portfolio in cash,
U.S. Treasury Bills, or other high grade short-term obligations in a segregated
account with its Custodian. If at the close of business on any day the market
value of the call purchased by a Portfolio falls below 100% of the market value
of the call written by the Portfolio, the Portfolio will so segregate an amount
of cash, U.S. Treasury Bills or other high grade short-term obligations equal in
value to the difference. Alternatively, a Portfolio may cover the call option
through segregating with the Custodian
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an amount of the particular foreign currency equal to the amount of foreign
currency per futures contract option times the number of options written by the
Portfolio. In the case of put options on currency futures written by a
Portfolio, the Portfolio will hold the aggregate exercise price in cash, U.S.
Treasury Bills, or other high grade short-term obligations in a segregated
account with its Custodian, or own put options on currency futures or short
currency futures, with the difference, if any, between the market value of the
put written and the market value of the puts purchased or the currency futures
sold, maintained by the Portfolio in cash, U.S. Treasury Bills or other high
grade short-term obligations in a segregated account with its Custodian. If at
the close of business on any day the market value of the put options purchased
or the currency futures by a Portfolio falls below 100% of the market value of
the put options written by the Portfolio, the Portfolio will so segregate an
amount of cash, U.S. Treasury Bills or other high grade short-term obligations
equal in value to the difference.
If other methods of providing appropriate cover are developed, a
Portfolio reserves the right to employ them to the extent consistent with
applicable regulatory and exchange requirements. In connection with transactions
in stock index options, stock index futures, interest rate futures, foreign
currency futures and related options on such futures, a Portfolio will be
required to deposit as "initial margin" an amount of cash or short-term
government securities equal to from 5% to 8% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the futures contract.
Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Portfolio's assets. The
Adviser intends to limit a Portfolio's writing of over-the-counter options in
accordance with the following procedure. Each Portfolio intends to write
over-the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which a
Portfolio has in place with such primary dealers will provide that the Portfolio
has the absolute right to repurchase an option it writes at any time, at a price
which represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific formula
may vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by a Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula also may include
a factor to account for the difference between the price of the security and the
strike price of the option if the option is written out-of-the-money. A
Portfolio will treat all or a part of the formula price as illiquid for purposes
of the 15% test imposed by the SEC staff.
Guaranteed Investment Contracts
Guaranteed Investment Contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by a
highly rated insurance company. Pursuant to such contracts, a Portfolio may make
cash contributions to a deposit portfolio of the insurance company's general or
separate accounts. The insurance company then credits to such Portfolio
guaranteed interest. The insurance company may assess periodic charges against a
GIC for expense and service costs allocable to it, and the charges will be
deducted from the value of the deposit portfolio. The purchase price paid for a
GIC generally becomes part of the general assets of the issuer, and the contract
is paid from the general assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable, or transferable, without the permission of
the issuing insurance company, and an active secondary market in GICs does not
currently exist. Also, a Portfolio may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, at which point the GIC
may be considered to be an illiquid investment.
Illiquid Securities
The Portfolios may invest up to 15% of their net assets in securities
that are considered illiquid because of the absence of a readily available
market or due to legal or contractual restrictions. Certain restricted
securities that
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are not registered for sale to the general public but that can be resold to
institutional investors may not be considered illiquid, provided that a dealer
or institutional trading market exists.
Interest Rate Transactions
Among the strategic transactions into which a Portfolio may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Portfolios expect to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities a Portfolio anticipates
purchasing at a later date. The Portfolios intend to use these transactions as
hedges and not as speculative investments and will not sell interest rate caps
or floors where it does not own securities or other instruments providing the
income stream a Portfolio may be obligated to pay. Interest rate swaps involve
the exchange by a Portfolio with another party of their respective commitments
to pay or receive interest (e.g. an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal). A currency swap
is an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index swap
is an agreement to swap cash flows on a notional amount based on changes in the
values of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined interest
rate or amount.
A Portfolio will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument), with the Portfolio receiving or paying, as the
case may be, only the net amount of the two payments. In as much as these swaps,
caps and floors are entered into for good faith hedging purposes, the Adviser
and the Portfolios believe such obligations do not constitute senior securities
under the 1940 Act and, accordingly, will not treat them as being subject to the
borrowing restrictions. A Portfolio will not enter into any swap, cap and floor
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the counterparty, combined with any credit enhancements, is
rated at least "A" by S&P or Moody's, has an equivalent rating from a Nationally
Recognized Statistical Rating Organization ("NRSRO") or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
counterparty, the Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
With respect to swaps, a Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps and floors require
segregation of assets with a value equal to the Portfolio's net obligation, if
any.
Lower Rated Debt Securities
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, 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. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held by a Portfolio with a commensurate effect on the
value of the Portfolio's shares.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
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economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as many buyers. Each Portfolio's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
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 lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Portfolio 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 lower rated debt and comparable
unrated securities may diminish a Portfolio'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.
Fixed income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Portfolio. If an issuer exercises these rights during periods of
declining interest rates, a Portfolio may have to replace the security with a
lower yielding security, thus resulting in a decreased return to the Portfolio.
The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such 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 adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
Options on Currencies
The International Growth Portfolio may purchase and sell options on
currencies to hedge the value of securities the Portfolio holds or intends to
buy. Options on foreign currencies may be traded on U.S. and foreign exchanges
or over-the-counter.
Real Estate Investment Trusts
A real estate investment trust ("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.
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REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both Equity and Mortgage REITs are
dependent upon management skill 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 tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended.
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Portfolio plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Trust's Custodian, or a
Sub-Custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.
Reverse Repurchase Agreements
At the time a Portfolio enters into a reverse repurchase agreement, it
may establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities or other liquid high grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market value
of the securities the Portfolios 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,
a Portfolio'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 Portfolio's obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). In addition, some or all of the
proceeds received by a Portfolio from the sale of a portfolio instrument may be
applied to the purchase of a repurchase agreement. To the extent the proceeds
are used in this fashion and a common broker/dealer is the counterparty on both
the reverse repurchase agreement and the repurchase agreement, the arrangement
might be recharacterized as a swap transaction. Under the requirements of the
1940 Act, the Portfolios are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, a Portfolio's asset coverage and other factors at the time of
a reverse repurchase, the Portfolio may not establish a segregated account when
the Adviser believes it is not in the best interests of the Portfolio to do so.
In this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Risk Factors Associated with Futures and Options Transactions
The effective use of options and futures strategies depends on, among
other things, a Portfolio's ability to terminate options and futures positions
at times when the Adviser deems it desirable to do so. Although a Portfolio will
not enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price. A Portfolio generally expects that its options
and futures transactions will be conducted on recognized U.S. and foreign
securities and commodity exchanges. In certain instances, however, a Portfolio
may purchase and sell options in the over-the-counter market. A Portfolio's
ability to terminate option positions established in the over-the-counter market
may be more limited than in the case of exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would fail to meet their obligations to the Portfolio.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
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The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of a Portfolio diverges
from the composition of the relevant index. The successful use of these
strategies also depends on the ability of the Adviser to correctly forecast
interest rate movements, currency rate movements and general stock market price
movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Portfolios' futures and options transactions.
Risk of Imperfect Correlation. A Portfolio's ability to effectively
hedge all or a portion of its portfolio through transactions in futures, options
on futures or options on stock indices depends on the degree to which movements
in the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Portfolio's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Portfolio might not be successful and the Portfolio could sustain losses
on its hedging transactions which would not be offset by gains on its portfolio.
It is also possible that there may be a negative correlation between the
security or index underlying a futures or option contract and the portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the Portfolio securities. In such instances, a Portfolio's
overall return could be less than if the hedging transactions had not been
undertaken. Stock index futures or options based on a narrower index of
securities may present greater risk than options or futures based on a broad
market index, as a narrower index is more susceptible to rapid and extreme
fluctuations resulting from changes in the value of a small number of
securities. A Portfolio would, however, effect transactions in such futures or
options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Portfolio will
not be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Portfolio.
A Portfolio will purchase or sell futures contracts or options only if,
in the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Portfolio's portfolio for the hedge to
be effective. There can be no assurance that the Adviser's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Portfolio will
establish a futures or option position only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a market will
exist for any particular futures or option contract at any specific time. In
such event, it may not be possible to close out a position held by the
Portfolio, which could require the Portfolio to purchase or sell the instrument
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underlying the position, make or receive a cash settlement, or meet ongoing
variation margin requirements. The inability to close out futures or option
positions also could have an adverse impact on a Portfolio's ability effectively
to hedge its securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Portfolio's overall performance may be poorer
than if it had not entered into any such contract. For example, if a Portfolio
has been hedged against the possibility of an increase in interest rates which
would adversely affect the price of bonds held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its bonds which have been hedged, because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Portfolio has insufficient cash, it may have to sell bonds from its portfolio
to meet daily variation margin requirements, possibly at a time when it may be
disadvantageous to do so. Such sale of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Portfolios' investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Portfolios enter into transactions in futures
contracts and options thereon for hedging purposes only, in order to assure that
they are not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures positions be entered
into for the purpose of hedging the value of investment securities held by a
Portfolio, and that all long futures positions either constitute bona fide
hedging transactions, as defined in such regulations, or have a total value not
in excess of an amount determined by reference to certain cash and securities
positions maintained for a Portfolio, and accrued profits on such positions. In
addition, a Portfolio may not purchase or sell such instruments if, immediately
thereafter, the sum of the amount of initial margin deposits on its existing
futures positions and premiums paid for options on futures contracts would
exceed 5% of the market value of the Portfolio's total assets.
When a Portfolio purchases a futures contract, an amount of cash, cash
equivalents or high quality debt securities will be segregated with the
Portfolio's Custodian so that the amount so segregated, plus the initial deposit
and variation margin held in the account of its broker, will at all times equal
the value of the futures contract, thereby insuring that the use of such futures
is unleveraged.
The Portfolios may be limited by the current Federal income tax
requirement that a Portfolio derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months. The Portfolios' ability to engage in the hedging transactions described
herein may limit their ability to engage in such transactions in response to the
policies and concerns of various Federal and state regulatory agencies. Such
policies may be changed by vote of the Board of Trustees.
Securities Lending
To increase return on portfolio securities, certain of the Portfolios
may lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
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secured by collateral equal at all times in value to at least the market value
of the securities loaned. Collateral for such loans may include cash, securities
of the U.S. Government, its agencies or instrumentalities, an irrevocable letter
of credit issued by (i) a U.S. bank that has total assets exceeding $1 billion
and that is a member of the Federal Deposit Insurance Corporation, or (ii) a
foreign bank that is one of the 75 largest foreign commercial banks in terms of
total assets, or any combination thereof. Such loans will not be made if, as a
result, the aggregate of all outstanding loans of the Portfolio involved exceeds
33% of the value of its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in its judgment, the income to be earned from the loan
justifies the attendant risks. Pursuant to the securities loan agreement a
Portfolio is able to terminate the securities loan upon notice of not more than
five business days and thereby secure the return to the Portfolio of securities
identical to the transferred securities upon termination of the loan.
Short Sales
As described in the Prospectus, certain Portfolios may from time to
time enter into short sales transactions. A Portfolio will not make short sales
of securities nor maintain a short position unless at all times when a short
position is open, such Portfolio owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by a Portfolio for the purpose of deferring
recognition of gain or loss for Federal income tax purposes.
Special Situations
As described in the Prospectus, certain Portfolios may invest in
"special situations." A special situation arises when, in the opinion of the
Adviser, the securities of a particular company will, within a reasonably
estimable period of time, be accorded market recognition at an appreciated value
solely by reason of a development applicable to that company, and regardless of
general business conditions or movements of the market as a whole. Developments
creating special situations might include, among others: liquidations,
reorganizations, recapitalizations, mergers, material litigation, technical
breakthroughs and new management or management policies. Although a large and
well known company may be involved, special situations more often involve a
comparatively small or unseasoned company. Investments in unseasoned company and
special situations often involve much greater risk than is inherent in ordinary
investment securities.
Stand-By Commitments
The Portfolios may acquire "stand-by commitments" with respect to
municipal securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Portfolio, at a Portfolio's option, specified
municipal securities at a specified price. Stand-by commitments are exercisable
by a Portfolio at any time before the maturity of the underlying municipal
securities, and may be sold, transferred, or assigned by a Portfolio only with
the underlying instruments.
A Portfolio's right to exercise stand-by commitments will be
unconditional and unqualified. A stand-by commitment will not be transferable by
a Portfolio, although the Portfolio could sell the underlying municipal
securities to a third party at any time. Until a Portfolio exercises its
stand-by commitment, it owns the securities in its portfolio which are subject
to the stand-by commitment.
The Portfolios expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Portfolio may pay for a stand-by commitment either
separately in cash, or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Portfolio pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by that Portfolio.
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Each Portfolio intends to enter into stand-by commitments only with
banks and broker/dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.
The Portfolios would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Portfolio will be valued at
zero in determining net asset value. A Portfolio's reliance upon the credit of
these dealers, banks, and broker/dealers will be secured by the value of the
underlying municipal securities that are subject to the commitment. Thus, the
risk of loss to a Portfolio in connection with a "stand-by commitment" will not
be qualitatively different from the risk of loss faced by a person that is
holding securities pending settlement after having agreed to sell the securities
in the ordinary course of business.
Variable- and Floating-Rate Instruments
The Portfolios may purchase variable-rate and floating-rate obligations
as described in the Prospectus. If such instrument is not rated, the Adviser
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government, or an agency or
instrumentality thereof, will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of, the period remaining to the next interest rate adjustment, or the time a
Portfolio can recover payment of principal as specified in the instrument.
The variable- and floating-rate demand instruments that the Portfolios
may purchase include participations in municipal securities purchased from and
owned by financial institutions, primarily banks. Participation interests
provide a Portfolio with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed 30 days. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank that the Adviser has determined meets the prescribed quality standards
for the Portfolios. The bank typically retains fees out of the interest paid on
the obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
When-Issued Purchases and Forward Commitments
A Portfolio may agree to purchase securities on a when-issued basis or
enter into a forward commitment to purchase securities. When a Portfolio engages
in these transactions, its Custodian will segregate cash, U.S. Government
securities or other high quality debt obligations equal to the amount of the
commitment. Normally, the Custodian will segregate portfolio securities to
satisfy a purchase commitment, and in such a case a Portfolio may be required
subsequently to segregate additional assets in order to ensure that the value of
the segregated assets remains equal to the amount of the Portfolio's commitment.
Because a Portfolio will segregate cash or liquid assets to satisfy its purchase
commitments in the manner described, the Portfolio's liquidity and ability to
manage its portfolio might be adversely affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets. In
the case of a forward commitment to sell portfolio securities, the Portfolio's
Custodian will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding.
A Portfolio will make commitments to purchase securities on a
when-issued 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, a Portfolio may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Portfolio on the
settlement date. In these cases the Portfolio may realize a capital gain or
loss.
25
<PAGE>
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
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 a
Portfolio starting on the date the Portfolio agrees to purchase the securities.
The Portfolio 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
Portfolio makes a forward commitment to sell securities it owns, the proceeds to
be received upon settlement are included in the Portfolio's assets. Fluctuations
in the value of the underlying securities are not reflected in the Portfolio's
net asset value as long as the commitment remains in effect.
NET ASSET VALUE
Purchases and Redemptions
See "About Your Investment--How To Buy Shares" and "About Your
Investment--How To Redeem Shares" in the Prospectus for a complete description
of the manner in which shares may be purchased and redeemed.
Net Asset Value Determination
Shares of each Portfolio are sold at their respective net asset value
next determined after the receipt of the purchase order, Participating Insurance
Companies may at any time redeem all or a portion of their shares at the next
determined net asset value following receipt of a redemption order.
The net asset value per share of each of the Portfolios is determined
at the times and in the manner described in the Prospectus.
A security listed or traded on an exchange is valued at its last sales
price on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the
over-the-counter market (but not including securities reported on the Nasdaq
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the Nasdaq National Market System is valued at the last
sales price on the valuation date.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Trust's Officers in a manner specifically authorized by the Board of
Trustees of the Trust. Short-term obligations having 60 days or less to maturity
are valued at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of a Portfolio are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods, events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the Trustees.
For purposes of determining the net asset value per share of the
International Growth Portfolio, all assets and liabilities of the International
Growth Portfolio initially expressed in foreign currencies will be converted
into U.S. dollars at the mean between the bid and ask prices of such currencies
against U.S. dollars quoted by a major
26
<PAGE>
bank that is a regular participant in the foreign exchange market, or on the
basis of a pricing service that takes into account the quotes provided by a
number of such major banks.
The Trust may redeem shares involuntarily to reimburse the Portfolios
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 Prospectus 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.
The right of redemption may be suspended, or the date of payment
postponed, when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposal of portfolio securities or the
valuation of the net assets of a Portfolio of the Trust not reasonably
practicable. The Exchange is closed for business on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Veterans Day, Thanksgiving Day and Christmas Day. The Federal Reserve
Bank observes the following holidays: New Years Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.
DESCRIPTION OF SHARES
Description of Shares of the Trust
Nations Annuity Trust, an open-end, management investment company, was
organized as a Delaware business trust on November 24, 1997. As of the date of
this SAI, the Trust's Board of Trustees has authorized the issuance of eight
Portfolios, each representing an unlimited number of beneficial interests --
Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio, Nations
International Growth Portfolio, Nations Managed Index Portfolio, Nations Managed
SmallCap Index Portfolio, Nations Marsico Focused Equities Portfolio, Nations
Marsico Growth & Income Portfolio and Nations Value Portfolio -- and the Board
of Trustees may, in the future, authorize the creation of additional investment
portfolios or classes of shares.
The Board of Trustees may classify or reclassify any unissued shares of
a Trust into shares of any class, classes or Portfolio in addition to those
already authorized by setting or changing in any one or more respects, from time
to time, prior to the issuance of such shares, the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any Portfolio or class. Any such classification
or reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
All shares of a Portfolio have equal voting rights and will be voted in
the aggregate, and not by series, except where voting by a series is required by
law or where the matter involved only affects one series. For example, a change
in a Portfolio's fundamental investment policy would be voted upon only by
shareholders of the Portfolio involved. Additionally, approval of an advisory
contract is a matter to be determined separately by Portfolio. Approval by the
shareholders of one Portfolio is effective as to that Portfolio whether or not
sufficient votes are received from the shareholders of the other Portfolios to
approve the proposal as to those Portfolios. As used in the Prospectus and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Portfolio, means the vote of the lesser of (i) 67% of the
shares of the Portfolio represented at a meeting if the shareholders of more
than 50% of the outstanding interests of the Portfolio are present in person or
by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio. The
term "majority," when referring to the approvals to be obtained from
shareholders of Nations Annuity Trust as a whole, means the vote of the lesser
of (i) 67% of the Trust's shares represented at a meeting if the shareholders of
more than 50% of the Trust's
27
<PAGE>
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Trust may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Trustees under the 1940 Act. However,
the Trust has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Trustee, or Trustees, if
requested in writing by the shareholders of at least 10% of the Trust's
outstanding voting shares, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Portfolio represents an equal proportional interest in
the Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Portfolio,
as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of Nations Annuity Trust, shareholders of a Portfolio
are entitled to receive the assets attributable to the Portfolio that are
available for distribution, and a distribution of any general assets not
attributable to a particular Portfolio that are available for distribution in
such manner and on such basis as the Trustees in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued as described in the Prospectus, will be fully paid and
non-assessable by the Trust.
Net income for dividend purposes consists of (i) interest accrued and
original issue discount earned on the Portfolio's assets, (ii) plus the
amortization of market discount and minus the amortization of market premium on
such assets, (iii) less accrued expenses directly attributable to the Portfolio
and the general expenses of Nations Funds prorated to the Portfolio on the basis
of its relative net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "About Your Investment--Tax Information."
The Prospectus of the Portfolios generally describes generally the tax treatment
of the Portfolios and their shareholders. This section of the SAI includes
additional information concerning Federal income taxes.
General
The Trust intends to qualify each Portfolio as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the best interest of the Portfolio's
shareholders. Each Portfolio will be treated as a separate entity for Federal
income tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to each Portfolio,
rather than to the Trust as a whole. In addition, net capital gain, net
investment income, and operating expenses will be determined separately for each
Portfolio. As a regulated investment company, each Portfolio will not be subject
to Federal income tax on its net investment income and net capital gain
distributed to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Portfolio 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) derived with respect to its business of
investing in such stock, securities or currencies; and (b) the Portfolio
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Portfolio's assets is represented by
cash, government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% of the Portfolio's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in 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 which the Portfolio controls and which are
determined to be engaged in the same or similar trades or businesses.
28
<PAGE>
The Portfolios must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) earned in each taxable year.
Although a Portfolio must ordinarily make such distributions during the taxable
year in which it realized the net investment income, in certain circumstances,
the Portfolio may make such distributions in the following taxable year.
Furthermore, distributions declared to a shareholder of record in a day in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Portfolios intend to pay out substantially all of their net
investment income and any net realized capital gains for each year.
Excise Tax
A 4% nondeductible excise tax will be imposed on each Portfolio to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. Each Portfolio intends to actually or be deemed to
distribute substantially all of its net investment income and net capital gain
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.
Taxation of Portfolio Investments
Except as provided herein, gains and losses on the sale of portfolio
securities by a Portfolio will generally be capital gains and losses. Such gains
and losses will ordinarily be long-term capital gains and losses if the
securities have been held by the Portfolio for more than one year at the time of
disposition of the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Portfolio
at a market discount (generally at a price less than its principal amount) 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 the Portfolio 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 which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written 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 a Portfolio pursuant to the exercise of a put option
written by it, such Portfolio will subtract the premium received from its cost
basis in the securities purchased.
The amount of any gain or loss realized by a Portfolio on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder 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.
Under Section 988 of the Code, a Portfolio will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio debt securities is attributable to changes in foreign currency
exchange rates. In addition, gain or loss realized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Portfolios will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a regulated investment Company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to
29
<PAGE>
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
a regulated investment company were 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, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company 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 regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company 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 recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If a Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Portfolio must recognize gain (but not loss) with respect to that position. For
this purpose, a constructive sale occurs when the Portfolio 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.
If a Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Portfolio may be subject to Federal income tax and an
interest charge imposed by the IRS upon certain distributions from the PFIC or
the Portfolio's disposition of its PFIC shares. If a Portfolio invests in a
PFIC, the Portfolio intends to make an available election to mark-to-market its
interest in PFIC shares. Under the election, the Portfolio will be treated as
recognizing at the end of each taxable year the difference, if any, between the
fair market value of its interest in the PFIC shares and its basis in such
shares. In some circumstances, the recognition of loss may be suspended. The
Portfolio will adjust its basis in the PFIC shares by the amount of income (or
loss) recognized. Although such income (or loss) will be taxable to the
Portfolio as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Portfolio will not be subject to Federal income tax or the interest
charge with respect to its interest in the PFIC.
Income and dividends received by the Portfolios from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
Taxation of a Separate Account of a Participating Insurance Company
Under the Code, the investments of a segregated asset account, such as
the separate accounts of the Participating Insurance Companies, must be
"adequately diversified" in order for the holders of the variable annuity
contracts or variable life insurance policies underlying the account to receive
the tax-deferred or tax-free treatment on such annuities or policies generally
afforded holders of annuities or life insurance policies.
In general, the investments of a segregated asset account are
considered "adequately diversified" only if (i) no more than 55% of the value of
the total assets of the account is represented by any one investment; (ii) no
more than 70% of the value of the total assets of the account is represented by
any two investments; (iii) no more than 80% of the value of the total assets of
the account is represented by any three investments; and (iv) no more than 90%
of the value of the total assets of the account is represented by any four
investments. In general, all securities of the same issuer are treated as a
single investment. However, Treasury Regulations provide a "look-through rule"
with respect to a segregated asset account's investments in a regulated
investment company for purposes of the applicable diversification requirements,
provided certain conditions are satisfied by the regulated investment company.
In particular, if the beneficial interests in the regulated investment company
are held by one or more segregated asset accounts of one or more insurance
companies, and if public access to such regulated investment company is
available exclusively through the purchase of a variable contract, then a
segregated asset account's beneficial interest in the regulated investment
company is not treated as a single investment. Instead, a pro rata portion of
each asset of the regulated investment company is treated as an asset of the
segregated asset account.
30
<PAGE>
Each Portfolio intends to satisfy the relevant conditions at all times,
thereby enabling the investment of the corresponding separate accounts to
qualify as "adequately diversified" investments. Accordingly, each separate
account of the Participating Insurance Companies will be able to treat its
interests in a Portfolio as ownership of a pro rata portion of each asset of the
Portfolio, such that holders of the variable annuity contracts or variable life
insurance policies underlying the separate account will be subject to the
favorable Federal income tax treatment under the Code.
For information concerning the Federal income tax consequences for the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectus used in connection with the issuance of
their particular contracts or policies and should consult their own tax
advisors.
Federal Income Tax Rates
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 28%; and the maximum corporate 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). Naturally, the amount of tax payable by an individual or corporation
will be affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
Other Matters
Investors should be aware that the investments to be made by the
Portfolio may involve sophisticated tax rules that may result in income or gain
recognition by the Portfolio without corresponding current cash receipts.
Although the Portfolio will seek to avoid significant noncash income, such
noncash income could be recognized by the Portfolio, in which case the Portfolio
may distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the Portfolio. Each investor
is urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust and their principal
occupations during the last five years are set forth below. The address of each,
unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Those Trustees who are "interested persons" of the Trust (as defined in the 1940
Act) are indicated by an asterisk(*).
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupations
Name Address and Age During Past 5 Years
- --------------------
Position with and Current
the Trust Directorships
----------- -----------------------
<S> <C> <C>
Edmund L. Benson, III, 60 Trustee Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves,
Richmond, VA 23219 Nations Fund Trust and Nations
Annuity Trust; Director, Nations
Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.
James Ermer, 55 Trustee Senior Vice President- Finance, CSX
31
<PAGE>
<CAPTION>
Principal Occupations
Name Address and Age During Past 5 Years
- --------------------
Position with and Current
the Trust Directorships
----------- -----------------------
<S> <C> <C>
13705 Hickory Nut Point Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation; Trustee,
Nations Institutional Reserves,
Nations Fund Trust and Nations Annuity
Trust; Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
William H.Grigg, 65 Trustee Chairman Emeritus,
Duke Power Duke Power Co. Co., since
422 South July, 1997; April 1994
PB04G Church treet to July 1997, Chairman
Charlotte, NC 28242-0001 and Chief Executive Officer;
November 1991
to April 1994, Vice Chairman, from
April 1988 to November 1991, Executive
Vice President -- Customer Group,
Director, Coltec Industries, Hatteras
Income Securities, Inc., Nations
Government Income Term Trust 2003,
Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc., Nations
Fund, Inc., Nations LifeGoal Funds,
Inc. and Nations Fund Portfolios,
Inc.; Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
Thomas F. Keller, 66 Trustee R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and former Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27708 University; Director, LADD
Furniture, Inc.; Director, Wendy's
International Inc., American Business
Products, Dimon Inc., Biogen, Inc.,
Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government Income
Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc.,
Nations Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.; Trustee, Nations
Institutional Reserves, Nations Fund
Trust, Nations Annuity Trust, the
Mentor Funds, Mentor Institutional
Trust, Cash Resource Trust.
Carl E. Mundy, Jr., 62 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Commanding General, Marine
Forces Atlantic, from June 1990 to
June 1991; Director, Nations Fund,
Inc., Nations LifeGoal Funds, Inc.,
and Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
James B. Sommers*, 58 Trustee President, NationsBank Trust,
237 Cherokee Road from January 1992 to September
Charlotte, NC 28207 1996; Executive Vice President,
NationsBank Corporation, from January
1992 to May 1997; Principal,
Bainbridge & Associates; Partner,
Villa LLC; Chairman, Central Piedmont
Community College Foundation; Trustee,
Central Piedmont Community College;
Board of Commissioners,
Charlotte/Mecklenberg
32
<PAGE>
<CAPTION>
Principal Occupations
Name Address and Age During Past 5 Years
- --------------------
Position with and Current
the Trust Directorships
----------- -----------------------
<S> <C> <C>
Hospital Authority; Director, Nations
Fund, Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
A. Max Walker*, 75 President, Trustee and Financial consultant; Formerly,
4580 Windsor Gate Court Chairman of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income Securities,
Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government
Income Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc.,
Nations Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.; President and
Chairman of the Board of Trustees,
Nations Institutional Reserves,
Nations Fund Trust and Nations Annuity
Trust.
Charles B. Walker, 59 Trustee Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
330 South Fourth Street Officer and Treasurer, Ethyl
Richmond, VA 23219 Corporation (chemicals, plastics,
and aluminum manufacturing); since
1994, Vice Chairman, Ethyl Corporation
and Vice Chairman, Chief Financial
Officer and Treasurer, Albemarle
Corporation, Director, Nations Fund,
Inc., Nations LifeGoal Funds, Inc, and
Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
Thomas S. Word, Jr.*, 59 Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, Vaughan
One James Center Bassett Furniture Trust, Director
Richmond, VA 23219 VB Williams Furniture Trust,
Inc.; Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust and Nations Annuity
Trust.
Richard H. Blank, Jr., 41 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Portfolio Services, Stephens Inc.
1983 to 1990, Associate in
Corporate Finance Department,
Stephens Inc.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Annuity
Trust, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 45 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
James E. Banks, 41 Assistant Secretary Since 1993, Attorney, Stephens
Stephens Inc. Inc.; Associate Corporate
Counsel, Federated Investors; from
1991 to 1993, Staff Attorney,
Securities and Exchange Commission
from 1988 to 1991
Richard H. Rose, 42 Treasurer Since 1994, Vice President, Division
33
<PAGE>
<CAPTION>
Principal Occupations
Name Address and Age During Past 5 Years
- --------------------
Position with and Current
the Trust Directorships
----------- -----------------------
<S> <C> <C>
First Data Investor Services Group, Inc. Manager, First Data
(formerly, The Shareholder Services Group, Inc. Investor Services Group, Inc.
One Exchange Place since 1988, Senior Vice
Boston, MA 02109 President, The Boston Company
Advisors. Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Annuity
Trust, Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations Fund
Portfolios, Inc.
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
Fund Accounting, First Data
Investor Services Group, Inc.;
Prior to 1997, Investment
Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder Stevens and
Clark, Inc.
</TABLE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data Investors Services Group, Inc. (the "Co-Administrator"), or its
affiliates serve as Sponsor, Distributor, Administrator and/or Adviser.
Each Trustee of the Trust is also a Trustee of Nations Fund Trust and
Nations Institutional Reserves and a Director of Nations Fund, Inc., Nations
Fund Portfolios, Inc., and Nations LifeGoal Funds, Inc. each a registered
investment company that is part of the Nations Funds Family. Richard H. Blank,
Jr., Richard H. Rose, Steven Levy, Michael W. Nolte, Louise P. Newcomb and James
E. Banks. Jr. also are Officers of Nations Fund Trust, Nations Institutional
Reserves, Nations Fund Portfolios, Inc., Nations Fund, Inc. and Nations LifeGoal
Funds, Inc.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Portfolio of the Trust, plus (ii) a
fee of $1,000 for attendance at each "in-person" meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees.
Officers receive no direct remuneration in such capacity from the Trust. No
person who is an Officer, Trustee, or employee of NationsBank or its affiliates
serves as an Officer, Trustee or employee of the Trust. As of the date of this
SAI, the Trustees and Officers of the Trust as a group owned less than 1% of the
outstanding shares of each of the Portfolios.
The Trust has adopted a Code of Ethics which, among other things,
prohibits each access person of the Trust, 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 a
Portfolio, or (ii) was being purchased or sold by a Portfolio. For purposes of
the Code of Ethics, an access person means (i) a Trustee or Officer of the
Trust, (ii) any employee of the Trust (or any Trust 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. Portfolio
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 Code of Ethics generally requires that the Trust's
access persons, other than its "disinterested" Trustees, submit reports to the
Trust's designated compliance person regarding transactions involving securities
which are eligible for purchase by a Portfolio.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Trustees (the "Retirement Plan"), each Trustee may be entitled to certain
benefits upon retirement from the Board of Trustees. Pursuant to the Retirement
Plan, the normal retirement date is the date on which the eligible Trustee has
attained age 65 and has completed at least five years of continuous service with
one or more of the open-end investment companies advised by the
34
<PAGE>
Adviser. If a Trustee retires before reaching age 65, no benefits are payable.
Each eligible Trustee is entitled to receive an annual benefit from the
Portfolios commencing on the first day of the calendar quarter coincident with
or next following his/her date of retirement equal to 5% of the aggregate
Trustee's fees payable by the Portfolios during the calendar year in which the
Trustee'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
Portfolios. Such benefit is payable to each eligible Trustee in quarterly
installments for a period of no more than five years. If an eligible Trustee
dies after attaining age 65, the Trustee'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 Trustee if he or she had not died. The
Retirement Plan is unfunded. The benefits owed to each Trustee are unsecured and
subject to the general creditors of the Portfolios.
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. 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 date the deferring Trustee's retirement benefits commence
under the Retirement Plan. The Board of Trustees, 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 or her deferral account, the balance of the deferral account will
be distributed to his/her 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
or her deferral account, the balance of the amounts credited to his or her
deferral account will be distributed to the 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
Portfolios from which they are deferring compensation.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Pension or Retirement
Compensation from Benefits Accrued as Part Estimated Annual Total Compensation from
Name of Person the of Portfolio Benefits Upon Registrant and Portfolio
Position (1) Trust (2) Expenses Retirement Complex (3)(4)
------------ --------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $4,894.39 $23,368.92 $11,535.67 $84,042.84
Trustee (50% Def'd)
James Ermer 8,085.49 23,368.92 11,535.67 46,716.94
Trustee
William H. Grigg 0.00 23,368.92 11,535.67 115,933.25
Trustee (100% Def'd)
Thomas F. Keller 178.90 23,368.92 11,535.67 124,575.75
Trustee (100% Def'd)
Carl E. Mundy, Jr. 9,679.25 23,368.92 11,535.67 52,092.00
Trustee
James Sommers 0.00 0.00 0.00 0.00
Trustee
A. Max Walker 11,486.99 23,368.99 11,535.67 75,322.94
Chairman of the Board
35
<PAGE>
<CAPTION>
Aggregate Pension or Retirement
Compensation from Benefits Accrued as Part Estimated Annual Total Compensation from
Name of Person the of Portfolio Benefits Upon Registrant and Portfolio
Position (1) Trust (2) Expenses Retirement Complex (3)(4)
------------ --------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Charles B. Walker 9,215.83 23,368.92 11,535.67 51,238.33
Trustee
Thomas S. Word 417.01 23,368.92 11,535.67 118,926.66
Trustee (100% Def'd)
$43,957.85 $186,951.37 $92,285.34 $668,848.71
========== =========== ========== ===========
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their
attendance at meetings of the Board of Trustees. Officers of the Trust receive
no direct remuneration in such capacity from the Trust.
(2) Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for
the Chairman of the Board) plus $500 for each Portfolio of the Trust, plus (ii)
a fee of $1,000 for attendance at each "in-person" meeting of the Board of
Trustees (or Committee thereof) and $500 for attendance at each other meeting of
the Board of Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from
nine investment companies, including the Trust, that are deemed to be part of
the Nations Funds "fund complex," as that term is defined under Rule 14a-101 of
the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C.
Walker, Mundy and Word receive compensation from six investment companies,
including the Trust, deemed to be part of the fund complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L. Benson,
III ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($110,610.14); and Thomas S. Word ($114,008.63).
Shareholder and Trustee Liability
Under Delaware law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. However, the Trust's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
the Trust, and that every note, bond, contract, order, or other undertaking made
by the Trust shall contain a provision to the effect that the shareholders are
not personally liable thereunder. The Declaration of Trust provides for
indemnification out of the Trust property of any shareholder held personally
liable solely by reason of his being or having been a shareholder and not
because of his acts or omissions or some other reason. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, Officer, or
Agent of the Trust shall be personally liable for, or on account of, any
contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the Trust estate or the
conduct of any business of the Trust; nor shall any Trustee be personally liable
to any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his
duties as Trustee. The Declaration of Trust also provides that all persons
having any claim against the Trustees or the Trust shall look solely to the
Trust property for payment.
36
<PAGE>
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him or her in connection with the defense or disposition
of any proceeding in which he or she may be involved or with which he/she may be
threatened by reason of his or her being or having been a Trustee, and that the
Trustees have the power, but not the duty, to indemnify Officers and employees
of the Trust unless any such person would not be entitled to indemnification had
he or she been a Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY AND SHAREHOLDER SERVICING AGREEMENTS
Investment Adviser
NBAI serves as investment adviser to the Portfolios of the Trust,
pursuant to an Investment Advisory Agreement. Pursuant to an Investment
Sub-Advisory Agreement entered into with the Trust, TradeStreet serves as
investment sub-adviser to the Portfolios of the Trust except Nations
International Growth Portfolio, Nations Marsico Focused Equities Portfolio and
Nations Marsico Growth & Income Portfolio. Marsico serves as investment
sub-adviser to Nations Marsico Focused Equities Portfolio and Nations Marsico
Growth & Income Portfolio and Gartmore serves as investment sub-adviser to
Nations International Growth Portfolio pursuant to respective Sub-Advisory
Agreements entered into with the Trust. All such agreements are effective as of
February ___, 1998 for a period of two years from such date.
For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of:
Fund Percentage of Average Daily Net Assets
------ --------------------------------------
Nations Balanced Assets Portfolio .75%
Nations Disciplined Equity Portfolio .75%
Nations International Growth Portfolio .90%
Nations Managed Index Portfolio .50%
Nations Managed SmallCap Index Portfolio .50%
Nations Marsico Focused Equities Portfolio .85%
Nations Marsico Growth & IncomePortfolio .85%
Nations Value Portfolio .75%
For the services provided pursuant to the Sub-Advisory Agreement,
TradeStreet is entitled to receive from NBAI sub-advisory fees, computed daily
and paid monthly, at the annual rates of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations Balanced Assets Portfolio .25%
Nations Disciplined Equity Portfolio .25%
Nations Managed Index Portfolio .10%
Nations Managed SmallCap Index Portfolio .10%
Nations Value Portfolio .25%
For the services provided pursuant to the Sub-Advisory Agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly at the annual rate of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations International Growth Portfolio .70%
37
<PAGE>
For the services provided pursuant to the Sub-Advisory Agreement,
Marsico is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly at the annual rate of:
Fund Percentage of Average Daily Net Assets
------ --------------------------------------
Nations Marsico Focused Equities Portfolio .45%
Nations Marsico Growth & Income Portfolio .45%
NBAI also serves as the investment adviser to Nations Fund, Inc.,
Nations Fund Trust, Nations Fund Portfolios, Inc., Nations Institutional
Reserves and Nations LifeGoal Funds, Inc., each a registered investment company
that is part of the Nations Funds Family. In addition, NBAI serves as the
investment advisor 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 New York Stock Exchange. TradeStreet
also serves as the investment sub-adviser to Nations Fund, Inc., Nations Fund
Trust, Nations Life Goal Funds, Inc., 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. Gartmore serves as
investment sub-adviser to Nations Fund Portfolios, Inc. and additionally, serves
as investment sub-adviser to Nations International Equity Fund, part of Nations
Fund, Inc. Marsico Capital serves as investment sub-adviser to Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund, part of Nations
Fund Trust.
NBAI and TradeStreet are each wholly owned subsidiaries of Nations
Bank, N.A. ("NationsBank"), which in turn is a wholly owned banking subsidiary
of NationsBank Corporation, a bank holding trust organized as a North Carolina
corporation. Gartmore is a joint venture structured as a Delaware general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank
and Gartmore U.S. Limited, an indirect wholly owned subsidiary of Gartmore
Investment Management plc ("Gartmore plc"), a publicly listed U.K. company.
National Westminster Bank plc and affiliated parties (collectively, "NatWest)
own 100% of the equity of Gartmore plc. Gartmore is a registered investment
adviser in the United States and a member of the Investment Management
Regulatory Organization Limited, a U.K. regulatory authority. The respective
principal offices of NBAI, TradeStreet and Gartmore are located at One
NationsBank Plaza, Charlotte, N.C. 28255. Marsico Capital Management, LLC is
located at 1200 17th Street, Suite 1300, Denver, CO 80202.
Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank affiliates collectively manage in excess of $50 billion,
including more than $27 billion in mutual fund assets. It is a company dedicated
to a goal of providing responsible investment management and superior service.
NationsBank is recognized for its sound investment approaches, which place it
among the nation's foremost financial institutions. NationsBank and its
affiliate organizations make available a wide range of financial services to
over 6 million customers through more than 1700 banking and investment centers.
Approximately 12 of NationsBank personnel are involved in stock and bond
research.
Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
TradeStreet, Gartmore and Marsico Capital, respectively, subject at all times to
the control of the Trust's Board of Trustees and in conformance with the stated
policies of each of the Trust, NBAI, TradeStreet, Gartmore and Marsico Capital
each selects and manages the investments of the Portfolios. Each such advisory
entity obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the respective Portfolios.
The Advisory Agreements each provide that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or TradeStreet, Gartmore or Marsico
Capital, respectively, or any of their respective Officers, Directors, employees
or agents, 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, or connected with,
rendering services thereunder, or for any losses that may be sustained in the
purchase, holding or sale of any security.
38
<PAGE>
The Investment Advisory Agreement with NBAI shall become effective with
respect to a Portfolio when approved in accordance with the 1940 Act, and if so
approved shall continue in effect for an initial term of two years, and shall
thereafter continue from year to year, provided that such continuation of the
Agreement is specifically approved at least annually by (a) (i) the Trust's
Board of Trustees, or (ii) the vote of "a majority of the outstanding voting
securities" of a Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and
(b) the affirmative vote of a majority of the Trustees who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Trustees of the Trust), by votes cast in person
at a meeting specifically called for such purpose. The respective Investment
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable with respect to a Portfolio at any time without penalty by the
Trust (by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement with TradeStreet shall become effective with
respect to the respective Portfolios when approved in accordance with the 1940
Act, and if so approved shall continue in effect for an initial term of two
years, and shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Trust's Board of Trustees, or (ii) the vote of "a majority of the
outstanding voting securities" of a Portfolio (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Trustees who
are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose. The
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Portfolio at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Portfolio), or by NBAI, or by
TradeStreet on 60 days' written notice.
The Sub-Advisory Agreement with Gartmore with respect to Nations
International Growth Portfolio shall become effective with respect to Nations
International Growth Portfolio when approved in accordance with the 1940 Act,
and if so approved shall continue in effect for an initial term of two years,
and shall thereafter continue from year to year, provided such continuance is
specifically approved at least annually by (a) (i) the Trust's Board of
Trustees, or (ii) the vote of "a majority of the outstanding voting securities"
of a Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Trustees who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Trustees of the Trust), by votes cast in person at
a meeting specifically called for such purpose. The Portfolio, NBAI or Gartmore
may terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
The Sub-Advisory Agreement with Marsico Capital with respect to Nations
Marsico Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio
when approved in accordance with the 1940 Act, and if so approved shall continue
in effect for an initial term of two years, and shall thereafter continue from
year to year, provided such continuance is specifically approved at least
annually by (a) (i) the Trust's Board of Trustees, or (ii) the vote of "a
majority of the outstanding voting securities" of a Portfolio (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
the Trustees who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of a party to such Agreement (other than as Trustees of
the Trust), by votes cast in person at a meeting specifically called for such
purpose. The respective Portfolios, NBAI or Marsico Capital may terminate the
Sub-Advisory Agreement, on 60 days' written notice without penalty. The Advisory
Agreement terminates automatically in the event of its "assignment," as defined
in the 1940 Act.
NBAI, TradeStreet, Gartmore or Marsico Capital may waive a portion of
their fees; however, any such waiver may be discontinued at any time. As
discussed under the caption "Expenses," NBAI, TradeStreet, Gartmore and Marsico
Capital will be required to reduce their fees from the Portfolios, in direct
proportion to the fees payable by the Portfolios to NBAI, TradeStreet, Gartmore,
Marsico Capital and the Administrator, if the expenses of the Portfolios exceed
the applicable expense limitation of any state in which the Portfolios' shares
are registered or qualified for sale.
39
<PAGE>
The Advisory and Sub-Advisory Agreements were approved by the Board of
Trustees, including a majority of Trustees who are not parties to such
Agreements or "interest persons" at the December 9, 1997 Special Board Meeting.
Investment Styles
When you invest in any Portfolio in the Nations Funds Family, you can be
assured your money is managed according to a disciplined investment style; one
that remains constant regardless of particular styles coming in and out of
favor. The Adviser believes this structured approach to managing portfolio
securities may provide you with consistent performance over time. The Adviser
uses various investment strategies during the process of constructing and
managing the Portfolios. These strategies have been categorized into investment
styles which consist of (i) the NationsBank Value Equity Style, (ii) the
NationsBank Balanced Asset Style, (iii) the NationsBank Disciplined Equity Style
and (iv) the International Growth Style. Investment styles described below
relate to Nations Value, Disciplined Equity, Balanced Assets and International
Growth Portfolios.
NationsBank Value Equity Style. The Value Portfolio is managed by the
Adviser using the NationsBank Value Equity Style. The Value Equity Style
investment philosophy is premised on the belief that a well diversified
portfolio of undervalued companies exhibiting low price/earnings ratios will,
over time outperform the market while incurring lower-than-market risk.
This style utilizes a "bottom-up" approach to stock selection, focusing
on well proven factors of fundamental valuation. A low price/earnings ratio and
above market dividend yield are two of the biases which reduce market risk. A
catalyst for earnings improvement is also one of this Style's requirements as it
assists with the "timing" of the purchase of a particular company.
Stock selection process begins with a team of 10 in-house research
specialists aided by a computerized screening model. Starting with approximately
a 2,000 company universe, stocks must first pass a rigorous screening process
that selects only those companies that possess strong financial quality and a
market capitalization greater than $500 million. This results in a universe of
approximately 900 companies, representing all of the 54 major U.S. industries
and approximately 10 economic sectors.
A more sophisticated screening process is then applied to the 900
company universe. The companies are then ranked based on the following factor
weightings:
The top one-third, or approximately 300 companies, result in the final
universe from which the industry specialists make initial selections for the
Portfolio. To insure adherence to the discipline, price objectives (buy and sell
prices) are set for each company purchased, based on sound fundamental analysis.
A final diversified portfolio of approximately 65 issues is constructed by the
Value Equity Style Group Senior Portfolio Managers working closely with in-house
industry specialists, as well as expert Wall Street sources.
In summary, the low price/earnings ratio, value discipline seeks to
produce a well diversified portfolio of high quality companies, that over time,
should outperform the market, thereby adding value while incurring below-market
risk.
NationsBank Balanced Asset Style. The Balanced Assets Portfolio is
managed by the Adviser using the NationsBank Balanced Asset Style. The
NationsBank Balanced Asset Style investment philosophy is premised on the belief
that a diversified portfolio of stocks, fixed income and money market securities
will provide total investment return through a combination of growth of capital
and current income consistent with preservation of capital.
In order to pursue this goal, the Balanced Asset Style utilizes an
asset allocation approach. Asset allocation is a process of allocating a
portfolio's market value among major asset classes (equities, fixed income and
cash equivalents). Different asset classes have unique return and risk
characteristics. The principle behind asset
40
<PAGE>
allocations is that a diversified portfolio of equities, fixed income and cash
equivalents with different return/risk characteristics will reduce overall
portfolio risk in both up and down markets.
The asset allocation process begins by making projections for stock,
bond and cash returns and risk profiles. A computer data analysis identifies the
highest expected return and measures it against the minimum return requirements
for the balanced strategy. Recommendations are made to an Investment Policy
Committee who reviews and approves asset class allocations.
The stock, bond and asset allocation recommendations are then passed
onto the Balanced Asset Group Senior Portfolio Managers who make the final
investment decisions. The Portfolio Managers have the ability to change the
portfolio's holdings to take advantage of changing market conditions, while
seeking an optimal balance of income, stability and growth. Most stock
investments will be made in trust with above average earnings and dividend
prospects and overall financial market stability. All bond purchases will be
investment grade or above. Cash instruments will provide liquidity.
In summary, the Balanced Asset Style should provide total investment
return through a combination of growth of capital and current income consistent
with preservation of capital.
NationsBank Disciplined Equity Style. The Disciplined Equity Portfolio
is managed by the Adviser using the NationsBank Disciplined Equity Style. The
NationsBank Disciplined Equity Style investment philosophy seeks to identify
companies which offer future near-term earnings momentum.
The Adviser pursues this investment philosophy through the use of a
proprietary computerized tracking system (the "Alpha Model") which monitors the
earnings per share estimates of approximately 3,000 Wall Street analysts, and
through conventional securities analysis. In utilizing the computerized tracking
system, the Adviser identifies a company with respect to which there has been a
change in the consensus analyst estimate of earnings per share. The Adviser
believes that such a change often signifies the beginning of a trend for the
company, rather than an isolated occurrence, and that such trend ultimately will
be reflected in the share price of the company. The Adviser then buys or sells
stocks for the Portfolio based on the results of this analysis.
In selecting stocks pursuant to the NationsBank Disciplined Equity
Style, the Adviser also uses conventional securities analysis techniques.
Starting with a universe of approximately 2,000 companies with large market
capitalizations, the Adviser eliminates stocks that have relatively low trading
activity, as well as stocks of companies of poor credit quality and those which,
in the opinion of the Adviser, are overpriced. From the available pool of stocks
that meet all of the criteria, approximately 40 to 50 are selected for inclusion
in the Portfolio.
International Growth Style. The International Growth Style investment
philosophy is premised on the belief that a diversified portfolio of equity
securities of established, non-United States issuers can provide long-term
growth of capital and income.
This style focuses on the country selection process by utilizing
macroeconomic forecasts to identify areas of the world which will exhibit
relatively strong growth within the context of a modest inflation and low
interest rate environment. The political factors and market liquidity
constraints which can affect stock market valuations are also taken into
consideration by the Adviser prior to making stock selections.
The stock selection process begins with the elimination of equity
securities with a market capitalization of less than $250 million. The next step
in the process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from a
universe of approximately 1,000 stocks. In addition to the relative historical
price/earnings ratio, the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.
The International Growth Portfolio is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the Portfolio back
to U.S. dollars from international currencies. All decisions to hedge are based
upon an analysis of the relative value of the U.S. dollar on an international
purchasing power parity basis
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(purchasing power parity is a method for determining the relative purchasing
power of different currencies by comparing the amount of each currency required
to purchase a typical bundle of goods and services to domestic markets) and an
estimation of short-term interest rate differentials (which affect both the
direction of currency movements and also the cost of hedging).
Administrator and Co-Administrator
Stephens Inc. (the "Administrator"), 111 Center Street, Suite 300,
Little Rock, AR 72201, serves as Administrator of the Trust, and First
Data Investor Services Group, Inc. (the "Co-Administrator"), One
Exchange Place, B0S885, 8th Floor, Boston, MA 02109, serves as the
Co-Administrator of the Trust. NBAI serves as Sub-Administrator (the
"Sub-Administrator") for the Trust.
The Administrator, Co-Administrator and Sub-Administrator serve under an
administration agreement ("Administration Agreement"), co-administration
agreement ("Co-Administration Agreement") and sub-administration agreement
("Sub-Administration Agreement"), respectively, each of which was approved by
the Board of Trustees on December 9, 1997 for a period of two years. The
Administrator receives, as compensation for its services rendered under the
Administration Agreement and as agent for the Co-Administrator for the services
it provides under the Co-Administration Agreement, an administrative fee,
computed daily and paid monthly, at the annual rate of 0.10% of the average
daily net assets of each Portfolio. For providing Sub-Administration Service,
NBAI is entitled to receive a monthly fee from Stephens based on an annual rate
of 0.01% of the Portfolios' average daily net assets.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Portfolios, (ii)
furnish statistical and research data, data processing, clerical, and internal
executive and administrative services to each Portfolio, (iii) furnish corporate
secretarial services to each Portfolio, including coordinating the preparation
and distribution of materials for Board of Trustees meetings, (iv) coordinate
the provision of legal advice to the Trust with respect to regulatory matters,
(v) coordinate the preparation of reports to each Portfolio's shareholders and
the SEC, including annual and semi-annual reports, (vi) coordinating the
provision of services to each Portfolio by the Co-Administrator, the Transfer
Agents and the Custodians, and (vii) generally assist in all aspects of each
Portfolio's operations. Additionally, the Administrator is authorized to
receive, as agent for the Co-Administrator, the fees payable to the
Co-Administrator by each Portfolio for its services rendered under the
Co-Administration Agreement. The Administrator bears all expenses incurred in
connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Portfolios, (ii) compute each Portfolio'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 each Portfolio'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. The Co-Administrator bears
all expenses incurred in connection with the performance of its services.
Pursuant to the Sub-Administration Agreement, the Sub-Administrator has
agreed to assist in supervising various aspects of the Portfolios'
administrative operations including:
(a) Coordinating the preparation and printing of
prospectuses and prospectus supplements;
(b) Coordinating the solicitation of shareholder proxies,
including the mailing of proxy materials and the hiring of proxy solicitors;
(c) Coordinating the holding of shareholder meetings;
(d) Coordinating the holding of Board of Trustees meetings;
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(e) Monitoring, on a daily basis, the compliance of each
investment portfolio of the Portfolios with its investment objective, policies,
restrictions, tax matters and applicable laws and regulations;
(f) Coordinating the mailing of reports and other
correspondence to shareholders of record of the Portfolios;
(g) Maintaining a secondary facility for the retention of
records required to be kept by the Portfolios;
(h) Maintaining a compliance manual, and overseeing
compliance with, all compliance procedures adopted by the Portfolios;
(i) Coordinating the preparation and printing of reports to
shareholders of the Portfolios and the SEC, including, but not necessarily
limited to, Annual Reports and Semi-Annual Reports to Shareholders and on Form
N-SAR;
(j) Coordinating annual audits of the Portfolios; and
(k) Reviewing and evaluating the services provided to the
Portfolios by service providers.
The Administration Agreement, Co-Administration Agreement and
Sub-Administration Agreement may be terminated by a vote of a majority of the
Board of Trustees or by the Administrator, Co-Administrator or
Sub-Administrator, respectively, on 60 days' written notice without penalty. The
Administration Agreement, Co-Administration Agreement or Sub-Administration are
not assignable without the written consent of the other party. Furthermore, the
Administration Agreement, Co-Administration Agreement and Sub-Administration
Agreement provide that the Administrator, Co-Administrator or Sub-Administrator,
respectively, shall not be liable to the Portfolios or to their shareholders
except in the case of the Administrator's, Co-Administrator's or
Sub-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Custodian and Transfer Agent
First Data, a wholly owned subsidiary of First Data Corporation, which
is located at One Exchange Place, Boston, Massachusetts 02109, acts as Transfer
Agent for the Trust's shares. Under the transfer agency agreement, the Transfer
Agent maintains the 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.
NationsBank of Texas, N.A., 901 Main Street, Dallas, Texas 75201,
serves as Custodian for each Portfolio except the International Growth
Portfolio. As Custodian, NationsBank of Texas, N.A., maintains custody of such
Portfolios' securities, cash and other property, delivers securities against
payment upon sale and pays for securities against delivery upon purchase, makes
payments on behalf of such Portfolios for payments of dividends, distributions
and redemptions, endorses and collects on behalf of such Portfolios all checks,
and receives all dividends and other distributions made on securities owned by
such Portfolios. For such services, NationsBank of Texas, N.A., is entitled to
receive, in addition to out-of-pocket expenses, fees, payable at the rate of (i)
$300,000 per annum, to be paid monthly in payments of $25,000 for Custodian
services for up to and including 50 Funds or Portfolios in the Nations Funds
Family, and (ii) $6,000 per annum, to be paid in equal monthly payments, for
Custodian services for each additional portfolio above 50 Funds or Portfolios.
The Bank of New York ("BONY"), 90 Washington Street, New York, New York
10286, serves as Custodian for the International Growth Portfolio and serves as
Sub-Custodian for the portfolio securities and cash of all other Portfolio of
the Trust. In return for providing Sub-Custodial Services, BONY receives, in
addition to out-
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of-pocket expenses, fees at the rate of .75% per annum on aggregate net assets
of all Nations' non-money market funds or Portfolios up to $10 billion, and (ii)
.50% on the excess including all Nations' money market funds or Portfolios up to
$10 billion, and (iii) .50% on the excess including all Nations money market
funds.
Shareholder Servicing and Distribution Plan
The Portfolios have adopted a Shareholder Servicing and Distribution
Plan (the "Servicing and Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act under which the Portfolios may pay banks, broker/dealers, Participating
Insurance Companies (as defined in the Prospectus) or other financial
institutions that have entered into a Sales Support Agreement with the
Distributor ("Selling Agents") or a Shareholder Servicing Agreement with the
Trust ("Servicing Agents") (together with Selling Agents ("Agents")) for certain
expenses that are incurred by the Agents in connection with sales support and
shareholder support services that are provided by the Agents. Payments under the
Servicing and Distribution Plan will be calculated daily and paid monthly at a
rate not exceeding 0.25% (on an annualized basis) of the average daily net asset
value of the Shares beneficially owned through the ownership of Contracts by
customers with whom the Agents have a relationship. Under the Servicing and
Distribution Plan, the shareholder services provided by Servicing Agents may
include general shareholder liaison services, processing purchases and
redemption requests; processing dividend and distribution payments; providing
sales information periodically to customers, including information showing their
Contracts' positions in the Portfolios; providing sub-accounting; responding to
inquiries from customers; arranging for bank wires; and providing such other
similar services as may be reasonably requested. Under the Servicing and
Distribution Plan, the Trust may make payments in connection with any activity
which is primarily intended to result in the sale of the Shares, including, but
not limited to, expenses of organizing and conducting sales seminars, printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental payments
to the Trust's Distributor and the cost of administering this Servicing and
Distribution Plan, as well as the shareholder servicing activities described
above.
Expenses
The Administrator furnishes, 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 the 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.
The Trust pays or causes to be paid all other expenses of the Trust,
including, without limitation: the fees of the Adviser, the Administrator,
Co-Administrator and Sub-Administrator; the charges and expenses of any
registrar, any Custodian or depository appointed by the Trust for the
safekeeping of its cash, portfolio securities and other property, and any
Transfer Agent, dividend or accounting agent or agents appointed by the Trust;
brokerage commissions chargeable to the Trust in connection with portfolio
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 its 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 Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or Trustee 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 Trustees) of the Trust which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any
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indemnification related thereto); and all other charges and costs of the Trust's
operation unless otherwise explicitly assumed by the Adviser, the Administrator
or Co-Administrator.
Expenses of the Trust which are not directly attributable to the
operations of any Portfolio are pro-rated among all Portfolios of the Trust
based upon the relative net assets of each Portfolio.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require NBAI, TradeStreet, Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Portfolio's shares are registered or
qualified for sale, as such limitations may be raised or lowered from time to
time, and the aggregate of all such investment advisory, sub-advisory, and
administration fees shall be reduced by the amount of such excess. The amount of
any such reduction to be borne by NBAI, TradeStreet, Gartmore or the
Administrator shall be deducted from the monthly investment advisory and
administration fees otherwise payable to NBAI, TradeStreet, Gartmore, and the
Administrator during such fiscal year. If required pursuant to such state
securities regulations, NBAI, TradeStreet, Gartmore, and the Administrator will
reimburse the Trust no later than the last day of the first month of the next
succeeding fiscal year, for any such annual operating expenses (after reduction
of all investment advisory and administration fees in excess of such
limitation).
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Portfolios.
Pursuant to a distribution agreement (the "Distribution Agreement"),
the Distributor, as agent, sells shares of the Portfolios 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 such
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 Portfolios, including, but not limited to,
advertising, compensation of underwriters, dealers and sales personnel, the
printing of prospectuses 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 the Distribution
Agreement adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Portfolio and (ii) a majority of the Trustees who are not
parties to the Distribution Agreement or "interested persons" of any such party
by a vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Portfolio,
without penalty, on 60 days' notice by the Board of Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Portfolio, or by the Distributor.
INDEPENDENT ACCOUNTANT AND REPORTS
At least semi-annually, the Trust will furnish shareholders of the
Portfolios with a list of the investments held in the Portfolios and financial
statements for the Portfolios. The annual financial statements will be audited
by the Trust's independent accountant. The Board of Trustees has selected Price
Waterhouse, LLP, 160 Federal Street, Boston, Massachusetts, 02110 as the Trust's
independent accountant to audit the Trust's books and review the Trust's tax
returns.
The Annual Reports, when available, will be sent free of charge with
this SAI to any shareholder who requests this SAI.
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The statement of assets and liabilities of the Trust dated February __,
1998, included herein, has been included in reliance upon the report of Price
Waterhouse, LLP, given on the authority of said firm as experts in auditing and
accounting.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Trust. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Trust's
Portfolios may be obtained by calling the Trust at (800) 321-7854.
From time to time, the yield and total return of a Portfolio's shares
may be quoted in advertisements, shareholder reports, and other communications
to shareholders. Each Portfolio of the Trust also may quote information obtained
from the Investment Company Institute in its advertising materials and sales
literature. In addition, certain potential benefits of investing in world
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.
Yield Calculations
The yield of the Portfolios is a measure of the net investment income
per share (as defined) earned over a 30-day period expressed as a percentage of
the maximum offering price of a share of such classes at the end of the period.
The Trust's yield figures are determined by dividing the net investment
income per share earned during the specified 30-day period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b + 1)6-1]
cd
Where: a = dividends and interest earned during the period
b = penses accrued for the period (net of reimbursements)
c = 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 purposes of yield quotation, income is calculated in accordance
with standardized methods applicable to all stock and bond mutual funds. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income.
Capital gains and losses are excluded from the calculation.
Income calculated for the purposes of calculating a Portfolio's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Portfolio may differ from the rate of
distributions a Portfolio paid over the same period or the rate of income
reported in the Portfolio's financial statements.
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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 Portfolio. The Portfolios' 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 as described
in the Prospectus, 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.
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.
This calculation, (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, 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.
Each Portfolio may quote information obtained from the Investment
Company Institute, national financial publications, trade journals and other
industry sources in its advertising and sales literature. In addition, the
Portfolios also may compare the performance and yield of a class or series of
shares to those of other 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 a class of shares in a Portfolio 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 a class of shares in a Portfolio.
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Any given performance comparison should not be considered
representative of a Portfolio's performance for any future period.
MISCELLANEOUS
Certain Record Holders
As of the date of this SAI, Stephens owned of record more than 25% of
the outstanding shares of the Trust acting as sponsor and may be deemed a
controlling person of the Trust under the 1940 Act.
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SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("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
Investors Service, Inc. ("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.
A-1
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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.
B - Bonds 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.
A-2
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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.
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 portfolios, 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 trust
fundamentals are sound. Although ongoing portfolioing 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
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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 trust and operating subsidiaries. BankWatch
ratings do not constitute a recommendation to buy or sell securities of any of
these trust. 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.
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.
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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.
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SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Portfolio, may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Schedule. During the current fiscal year, each of the Portfolios intends to
limit its transactions in futures contracts and options so that not more than 5%
of the Portfolio's net assets are at risk. Furthermore, in no event would any
Portfolio purchase or sell futures contracts, or related options thereon, for
hedging purposes if, immediately thereafter, the aggregate initial margin that
is required to be posted by the Portfolio under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Portfolio on its open futures options positions, exceeds 5% of the
Portfolio's total assets, after taking into account any unrealized profits and
unrealized losses on the Portfolio's open contracts and excluding the amount
that a futures option is "in-the-money" at the time of purchase. (An option to
buy a futures contract is "in-the-money" if the value of the contract that is
subject to the option exceeds the exercise price; an option to sell a futures
contract is "in-the-money" if the exercise price exceeds the value of the
contract that is subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Portfolio may use interest rate futures as a
defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Portfolio's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Portfolio is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Portfolio pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Portfolio's entering into a futures contract sale. If
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the offsetting sale price exceeds the purchase price, the Portfolio realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Portfolio would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Portfolios may trade in any futures contract
for which there exists a public market, including, without limitation, the
foregoing instruments.
Examples of Futures Contract Sales. A Portfolio would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise act Trust a decline in long-term
securities prices. Assume that the market value of a certain security in a
Portfolio tends to move in concert with the futures market prices of long-term
United States Treasury Bonds ("Treasury Bonds"). The Adviser wishes to fix the
current market value of this portfolio security until some point in the future.
Assume the portfolio security has a market value of 100, and the Adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Portfolio might enter into futures contract sales of Treasury
Bonds for an equivalent of 98. If the market value of the portfolio securities
does indeed decline from 100 to 95, the equivalent futures market price for the
Treasury Bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury Bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchases. A Portfolio would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Portfolio's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Portfolio would be endeavoring at the same time to eliminate the effect of all
or part of an expected increase in market price of the long-term bonds that the
Portfolio may purchase.
For example, assume that the market price of a long-term bond that the
Portfolio may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury Bonds. The Adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the long-term
bond has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Portfolio might
enter into futures contracts purchases of Treasury Bonds for
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an equivalent price of 98. At the same time, the Portfolio would assign a pool
of investments in short-term securities that are either maturing in four months
or earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury Bonds might also rise from 98
to 103. In that case, the 5-point increase in the price that the Portfolio pays
for the long-term bond would be offset by the 5-point gain realized by closing
out the futures contract purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Portfolio would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Portfolio would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index (an index composed of 40 term revenue and
general obligation bonds) or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Portfolio will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, a
Portfolio will purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Portfolio will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, a Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
A Portfolio also may sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the Portfolio will decline prior to the
time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is, market
value decreased and the Portfolio had entered into an anticipatory purchase
hedge, or market value increased and the Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40 000 Loss on Futures = $40,000
III. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no price is paid
or received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with the Portfolio's Custodian an amount of cash or cash
equivalents, the value, of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of portfolios by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less
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valuable, a process known as marking to the market. For example, when a
Portfolio has purchased a futures contract and the price of the contract has
risen in response to a rise in the underlying instruments, that position will
have increased in value and the Portfolio will be entitled to receive from the
broker a variation margin payment equal to that increase in value. Conversely,
where a Portfolio has purchased a futures contract and the price of the futures
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable, the Portfolio would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, the Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
IV. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by a
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advance will be partially offset by the loss on the future. If the price of the
future moves more than the price of the hedged securities, the Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Portfolio may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Portfolio may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the securities being hedged is less than the volatility over such time period
of the futures contract being used, or if otherwise deemed to be appropriate by
the Adviser. It also is possible that, where a Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance, and
the value of securities held by the Portfolio may decline. If this occurred, the
Portfolio would lose money on the future and also experience a decline in value
in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Portfolio then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Portfolio will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's Custodian and/or in a margin account with a broker to collateralized
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures
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market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may also
cause temporary price distortions. Due to the possibility of price distortion in
the futures market, and because of the imperfect correlation between the
movements in the cash market and movements in the price of futures, a correct
forecast of general market trends or interest rate movements by the Adviser
still may not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Portfolio has hedged against the possibility of a decline in
the market adversely affecting securities held in its portfolio and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
V. Options on Futures Contracts.
The Portfolios 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 a Portfolio because the maximum amount at risk is the premium
paid for the options (plus transaction costs). Although permitted by their
fundamental investment policies, the Portfolios do not currently intend to write
future options, and will not do so in the future absent any necessary regulatory
approvals.
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VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
For the appropriate tax treatment of futures contracts and options, see
the SAI section entitled "Additional Information Concerning Taxes."
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SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
F
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
Government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association ("FNMA") is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and Federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of Federal Housing
Administration-insured or Veterans Administration-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance Trust, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in the former pools.
C-1
<PAGE>
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The Portfolios expect that governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Portfolios will, consistent with their investment
objective and policies, consider making investments in such new types of
securities.
Underlying Mortgages
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Portfolio may purchase pools of variable-rate mortgages
("VRM"), growing equity mortgages ("GEM"), graduated payment mortgages ("GPM")
and other types where the principal and interest payment procedures vary. VRM's
are mortgages which reset the mortgage's interest rate periodically with changes
in open market interest rates. To the extent that the Portfolio is actually
invested in VRM's, the Portfolio's interest income will vary with changes in the
applicable interest rate on pools of VRM's. GPM and GEM pools maintain constant
interest rates, with varying levels of principal repayment over the life of the
mortgage. These different interest and principal payment procedures should not
impact the Portfolio's net asset value since the prices at which these
securities are valued will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance company.
Average Life
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
Returns on Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Portfolio. The
compounding effect from reinvestments of monthly payments received by the
Portfolio will increase its yield to shareholders, compared to bonds that pay
interest semi-annually.
C-2
<PAGE>
NATIONS ANNUITY TRUST
STATEMENTS OF ASSETS AND LIABILITIES
January 30, 1998
<TABLE>
<CAPTION>
Nations Nations
Marsico Marsico Nations Nations
Focused Growth & Balanced Nations Disciplined
Equities Income Assets Value Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash............................................$10,000 $10,000 $10,000 $10,000 $10,000
Deferred organizational expenses (Note 1)....... 18,750 18,750 18,750 18,750 18,750
------ ------ ------ ------ ------
Total Assets................................ 28,750 28,750 28,750 28,750 28,750
------ ------ ------ ------ ------
LIABILITIES:
Accrued organizational expenses (Note 1)........ 18,750 18,750 18,750 18,750 18,750
------ ------ ------ ------ ------
NET ASSETS:.....................................$10,000 $10,000 $10,000 $10,000 $10,000
============ ============== =============== =============== ==============
SHARES OF BENEFICIAL INTEREST
OUTSTANDING, no par value,
unlimited shares authorized .....................1,000 1,000 1,000 1,000 1,000
============ ============== =============== =============== ==============
SHARES:
Net asset value, offering and redemption
price per share of beneficial interest
outstanding......................................$10.0 $10.00 $10.00 $10.00 $10.00
============= ============= =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Nations Managed
International Managed SmallCap
Growth Index Index
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Cash......................................... $10,000 $20,000 $20,000
Deferred organizational expenses (Note 1).... 18,750 18,750 18,750
------ ------ ------
Total Assets............................. 28,750 38,750 38,750
------ ------ ------
LIABILITIES:
Accrued organizational expenses (Note 1)..... 18,750 18,750 18,750
------ ------ ------
NET ASSETS:.................................. $10,000 $20,000 $20,000
=============== =============== ==============
SHARES OF BENEFICIAL INTEREST
OUTSTANDING, no par value,
unlimited shares authorized ................. 1,000 2,000 2,000
=============== =============== ==============
SHARES:
Net asset value, offering and redemption
price per share of beneficial interest
outstanding.................................. $10.00 $10.00 $10.00
=============== =============== ==============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees
of Nations Annuity Trust
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Nations Balanced
Assets Portfolio, Nations Disciplined Equity Portfolio, Nations International
Growth Portfolio, Nations Managed Index Portfolio, Nations SmallCap Index
Portfolio, Nations Marsico Focused Equities Portfolio, Nations Marsico Growth &
Income Portfolio and Nations Value Portfolio (constituting Nations Annuity
Trust, hereafter referred to as the "Trust") at January 30, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Trust's management, our responsibility is to express
an opinion on the these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 13, 1998
<PAGE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
1. ORGANIZATION
Nations Annuity Trust ( the Trust"), is organized as a Delaware business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company whose shares are offered in the following
eight portfolios: Nations Balanced Assets Portfolio, Nations Disciplined Equity
Portfolio, Nations International Growth Portfolio, Nations Managed Index
Portfolio, Nations Managed SmallCap Index Portfolio, Nations Marsico Focused
Equities Portfolio, Nations Marsico Growth & Income Portfolio and Nations Value
Portfolio (individually, a " Portfolio", collectively the "Portfolios"). The
Portfolios are made available only to variable annuity and variable life
separate accounts issued by participating life insurance companies.
Costs incurred by the Portfolios in connection with their organization will be
deferred and amortized on a straight line basis over the period of benefit not
to exceed sixty months. If any of the initial shares are redeemed during the
amortization period by any holder thereof, the redemption proceeds will be
reduced by a pro rata portion of the then unamortized organization costs.
2. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Trust has entered into an investment advisory agreement with NationsBanc
Advisors, Inc. ("NBAI"), a wholly-owned subsidiary of NationsBank N.A.
("NationsBank"). NBAI serves as investment adviser to the Portfolios of the
Trust. TradeStreet Investment Associates, Inc. ("TradeStreet"), a wholly owned
subsidiary of NationsBank serves as investment sub-adviser to the Portfolios,
except Nations International Growth Portfolio, Nations Marsico Focused Equities
Portfolio and Nations Marsico Growth & Income Portfolio. Marsico Capital
Management, LLC ("Marsico") serves as investment sub-adviser to Nations Marsico
Focused Equities Portfolio and Nations Marsico Growth & Income Portfolio.
Gartmore Global Partners ("Gartmore") serves as investment sub-adviser to
Nations International Growth Portfolio. The Trust has had no operations other
than organizational matters and the issuance of shares of each of the Portfolios
to Stephens, Inc., the Trust's Administrator.
For its services, NBAI is entitled to receive advisory fees, computed daily and
paid monthly, at the annual rates of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations Balanced Assets Portfolio .75%
Nations Disciplined Equity Portfolio .75%
Nations International Growth Portfolio .90%
Nations Managed Index Portfolio .50%
Nations Managed SmallCap Index Portfolio .50%
Nations Marsico Focused Equities Portfolio .85%
Nations Marsico Growth & Income Portfolio .85%
Nations Value Portfolio .75%
For its services, TradeStreet is entitled to receive from NBAI sub-advisory
fees, computed daily and paid monthly, at the annual rates of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations Balanced Assets Portfolio .25%
Nations Disciplined Equity Portfolio .25%
Nations Managed Index Portfolio .10%
Nations Managed SmallCap Index Portfolio .10%
Nations Value Portfolio .25%
<PAGE>
For its services, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rate of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations International Growth Portfolio .70%
For its services, Marsico is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rates of:
Fund Percentage of Average Daily Net Assets
---- --------------------------------------
Nations Marsico Focused Equities Portfolio .45%
Nations Marsico Growth & Income Portfolio .45%
For providing Sub-Administration Service, NBAI is entitled to receive a monthly
fee from the administrator based on an annual rate of 0.01% of the Portfolios'
average daily net assets.
3. SHAREHOLDER SERVICING AND DISTRIBUTION PLANS.
The Portfolios have adopted a Shareholder Servicing and Distribution Plan (the
"Servicing and Distribution Plan") pursuant to rule 12b-1 under the 1940 Act.
Payments under the Servicing and Distribution Plan will be calculated daily and
paid monthly at a rate not exceeding 0.25% (on an annualized basis) of the
average daily net asset value of the Shares beneficially owned through the
ownership of Contracts by customers with whom the Selling and Servicing Agents
have a relationship.
<PAGE>
NATIONS ANNUITY TRUST
FILE NOS. 333-40265; 811-08481
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Statement of Assets and Liabilities of Nations Annuity Trust at
February 13, 1998
(b) Exhibits
Exhibit
Number Description
----- ------------
(1) Amended and Restated Declaration of Trust, filed
herewith.
(2) Bylaws, filed herewith.
(3) None.
(4) N/A
(5)(a) Investment Advisory Agreement between NationsBanc
Advisors, Inc. ("NBAI") and the Registrant, filed
herewith.
(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet
Investment Associates, Inc. ("TradeStreet") and the
Registrant, filed herewith.
(5)(c) Sub-Advisory Agreement among NBAI, Gartmore Global
Partners ("Gartmore") and the Registrant, filed
herewith.
(5)(d) Sub-Advisory Agreement among NBAI, Marsico Capital
Management, LLC ("Marsico"), and the Registrant, filed
herewith.
(6)(a) Distribution Agreement between Stephens Inc.
("Stephens") and Registrant for all classes of
shares of Nations Annuity Trust, filed herewith.
(6)(b) Sales Support Agreement, filed herewith.
(6)(c) Shareholder Servicing Agreement, filed herewith.
(6)(d) Participation Agreement with Hartford Life
Insurance Company, filed herewith.
(7) Deferred Compensation Plan, to be filed by amendment.
1
<PAGE>
(8)(a) Mutual Fund Custody and Sub-Custody Agreement among
Registrant, NationsBank of Texas, N.A.
("NationsBank Texas") and The Bank of New York
("BONY"), to be filed by amendment.
(8)(b) Global Custody Agreement between BONY and Registrant, on
behalf of Nations International Growth Portfolio,
filed herewith.
(9)(a) Administration Agreement between Stephens and
Registrant, filed herewith.
(9)(b) Co-Administration Agreement between First Data
Investor Services Group, Inc. ("First Data") and
Registrant, filed herewith.
(9)(c) Sub-Administration Agreement among NBAI, Stephens and the
Registrant, filed herewith.
(9)(d) Transfer Agency and Services Agreement, between
Registrant and First Data, filed herewith.
(10) Opinion and Consent of Counsel, filed herewith.
(11) Report and Consent of Independent Accountants,
filed herewith.
(12) N/A
(13) Investment Letter, filed herewith.
(14) N/A
(15) Shareholder Servicing and Distribution Plan, filed
herewith.
(16) Schedule for Computation of Performance Quotations,
to be filed by Amendment.
(17) N/A
(18) N/A
Item 25. Persons Controlled By or Under Common Control with Registrant
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of February 1, 1998, no securities of the Registrant had
been issued.
2
<PAGE>
Item 27. Indemnification
Article V of the Registrant's Declaration of Trust limits the
liability and, in certain instances, provides for mandatory
indemnification of the Registrant's trustees, officers,
employees, agents and holders of beneficial interests in the
Trust. In addition, the Trustees are empowered under Section 3.9
of the Registrant's Declaration of Trust to obtain such
insurance policies as they deem necessary. Indemnification of
Registrant's administrator, principal underwriter, custodian,
and transfer agent is provided for, respectively, in:
1. Administration Agreement with Stephens;
2. Co-Administration Agreement with First Data;
3. Distribution Agreement with Stephens;
4. Mutual Fund Custody and Sub-Custody Agreement with
NationsBank Texas and BONY; and
5. Transfer Agency Agreement with First Data.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission ("SEC") such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or proceeding)
is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, 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 Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) To the knowledge of Registrant, none of the directors or
officers of NBAI, the adviser to the Registrant's portfolios, or
TradeStreet, Gartmore or Marsico, the sub-investment 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 NBAI or TradeStreet, respectively, or other
subsidiaries of NationsBank Corporation.
(b) NBAI performs investment advisory services for the
Registrant and certain other customers. NBAI is a wholly owned
subsidiary of NationsBank, N.A. ("NationsBank"), which in turn is a
wholly owned banking subsidiary of NationsBank Corporation. Information
with
3
<PAGE>
respect to each director and officer of the investment adviser is
incorporated by reference to Form ADV filed by NBAI with the SEC
pursuant to the Investment Advisers Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for
the Registrant and certain other customers. TradeStreet is a wholly
owned subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation. Information with respect to each
director and officer of the sub-investment adviser is incorporated by
reference to Form ADV filed by TradeStreet with the SEC pursuant to the
Investment Advisers Act of 1940, as amended (the "1940 Act") (file no.
801-50372).
(d) Marsico performs sub-investment advisory services for the
Registrant and certain other customers. NationsBank has an option to
purchase up to 50% of Marsico. Information with respect to each director
and officer of the sub-investment adviser is incorporated by reference
to Form ADV filed by Marsico with the SEC pursuant to the 1940 Act (file
no. 801-54914).
(e) Gartmore performs sub-investment advisory services for the
Registrant and certain other customers. Gartmore is a joint venture
structured as a general partnership between NB Partner Corp., a wholly
owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc, a UK
Company which is the holding company for a leading UK based
international fund management group of companies. Information with
respect to each director and officer of the sub-investment adviser is
incorporated by reference to Form ADV filed by Gartmore with the SEC
pursuant to the 1940 Act (file no. 801-48811).
Item 29. Principal Underwriter
(a) Stephens, distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies,
but does act as principal underwriter for Nations Fund Trust, Nations
Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations LifeGoal Fund, Inc., the Overland Express Funds, Inc.,
Stagecoach Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the
exclusive placement agent for Master Investment Trust, Managed Series
Investment Trust, Life & Annuity Trust and Master Investment Portfolio,
all of which are registered open-end management investment companies,
and has acted as principal underwriter for the Liberty Term Trust, Inc.,
Nations Government Income Term Trust 2003, Inc., Nations Government
Income Term Trust 2004, Inc. and the Managed Balanced Target Maturity
Fund, 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 Inc. with the SEC pursuant to the 1940 Act (file #501-15510).
(c) Not applicable.
4
<PAGE>
Item 30. Location of Accounts and Records
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina
28255 (records relating to its function as Investment
Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North
Carolina 28255 (records relating to its function as
Sub-Adviser).
(3) Gartmore, One NationsBank Plaza, Charlotte, NC 28255
(records relating to its function as Sub-Adviser).
(4) Marsico, 1200 17th Street, Suite 1300, Denver, CO 80202
(records relating to its function as Sub-Advisor).
(5) Stephens, 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Distributor).
(6) Stephens, 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Administrator).
(7) First Data, One Exchange Place, Boston, Massachusetts
02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(8) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202
(records relating to its function as Custodian).
(9) BONY, 90 Washington Street, New York, New York 10286
(records relating to its function as Custodian, for
Nations International Growth Portfolio, and Sub-Custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified,
within four to six months from the effective date of this
Registration Statement.
(b) Registrant undertakes to call a meeting for the purpose of
voting upon the question or removal of a trustee or
trustees when requested in writing to do so by the holders
of at least 10% of a Fund's outstanding shares of
beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the 1940
Act, as amended, relating to shareholder communications.
5
<PAGE>
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
most recent annual report to shareholder upon request and
without charge.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N1-A
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Little Rock, State of Arkansas on the 19th
day of February, 1998.
NATIONS ANNUITY 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
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
----------- ---- -------
<S> <C> <C>
* President and Chairman February 19, 1998
- ----------------------------------------
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer, Vice President February 19, 1998
- ----------------------------------------
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Trustee February 19, 1998
- ----------------------------------------
(Edmund L. Benson, III)
* Trustee February 19, 1998
- ----------------------------------------
(James Ermer)
* Trustee February 19, 1998
- ----------------------------------------
(William H. Grigg)
* Trustee February 19, 1998
- ----------------------------------------
(Thomas F. Keller)
* Trustee February 19, 1998
- ----------------------------------------
(Carl E. Mundy, Jr.)
* Trustee February 19, 1998
- ----------------------------------------
(Charles B. Walker)
* Trustee February 19, 1998
- ----------------------------------------
(Thomas S. Word)
* Trustee February 19, 1998
- ----------------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
--------------------------
Richard H. Blank, Jr.
<PAGE>
Exhibits
Exhibit 99.B1 - Declaration of Trust
Exhibit 99.B2 - By-Laws
Exhibit 99.B5(a) - Advisory Agreement w/NBAI
Exhibit 99.B5(b) - Sub-Advisory Agreement w/TradeStreet
Exhibit 99.B5(c) - Sub-Advisory Agreement w/Gartmore
Exhibit 99.B5(d) - Sub-Advisory Agreementw/Marsico
Exhibit 99.B6(a) - Distribution Agreement
Exhibit 99.B6(b) - Sales Support Agreement
Exhibit 99.B6(c)- Shareholder Servicing Agreement
Exhibit 99.B6(d) - Participation Agreement
Exhibit 99.B8(b) - Global Custody Agreement
Exhibit 99.B9(a) - Administration Agreement
Exhibit 99.B9(b) - Co-Administration Agreement
Exhibit 99.B9(c) - Sub-Administration Agreement
Exhibit 99.B9(d) - Transfer Agency and Services Agreement
Exhibit 99.B10 - Opinion of Counsel
Exhibit 99.B11 - Accountants' Consent
Exhibit 99.B13 - Investment Letter
Exhibit 99.B15 - Shareholder Servicing and Distribution Plan
</TABLE>
EXHIBIT 99.B1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NATIONS ANNUITY TRUST
a Delaware Business Trust
February 5, 1998
Principal Place of Business:
One NationsBank Plaza
33rd Floor
Charlotte, North Carolina 28255
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
The Trust
<S> <C> <C>
Section 1.1: Name......................................................... 1
Section 1.2: Trust Purpose................................................ 2
Section 1.3: Definitions.................................................. 2
ARTICLE II
Trustees
Section 2.1: Number and Qualification..................................... 4
Section 2.2: Term and Election............................................ 4
Section 2.3: Resignation and Removal...................................... 4
Section 2.4: Vacancies.................................................... 5
Section 2.5: Meetings..................................................... 5
Section 2.6: Officers; Chairman of the Board.............................. 6
Section 2.7: Bylaws....................................................... 6
ARTICLE III
Powers of Trustees
Section 3.1: General...................................................... 6
Section 3.2: Investments.................................................. 6
Section 3.3: Legal Title.................................................. 7
Section 3.4: Sale of Interests............................................ 7
Section 3.5: Borrow Money................................................. 7
Section 3.6: Delegation; Committees....................................... 7
Section 3.7: Collection and Payment....................................... 7
Section 3.8: Expenses..................................................... 8
Section 3.9: Miscellaneous Powers......................................... 8
Section 3.10: Further Powers............................................... 8
ARTICLE IV
Investment Advisory, Administrative Services
and Distribution Arrangements
Section 4.1: Investment Advisory and Other Arrangements................... 9
Section 4.2: Parties to Contract.......................................... 9
<PAGE>
ARTICLE V
Limitations of Liability
Section 5.1: No Personal Liability of Trustees, Officers or Employees;
Liability of Holders; Indemnification......................... 9
Section 5.2: Non-liability of Trustees, etc................................ 10
Section 5.3: Mandatory Indemnification..................................... 10
Section 5.4: No Bond Required of Trustees.................................. 10
Section 5.5: No Duty of Investigation; Notice in Trust Instruments......... 10
Section 5.6: Reliance on Experts, etc...................................... 11
ARTICLE VI
Interests in the Trust
Section 6.1: Interests.................................................... 11
Section 6.2: Rights of Holders............................................ 11
Section 6.3: Purchase of or Increase in Interests......................... 12
Section 6.4: Register of Interests........................................ 12
Section 6.5: Notices...................................................... 12
ARTICLE VII
Distributions
Section 7.1: Distributions................................................ 12
Section 7.2: Determination of Net Income.................................. 13
Section 7.3: Dividends and Distributions from Assets Only................. 13
ARTICLE VIII
Redemptions
Section 8.1: Redemptions.................................................. 13
Section 8.2: Redemptions at the Option of the Trust....................... 15
Section 8.3: Redemptions and Repurchases from Assets Only................. 16
ARTICLE IX
Holders
Section 9.1: Meetings of Holders.......................................... 16
Section 9.2: Notice of Meetings........................................... 16
Section 9.3: Record Date for Meetings..................................... 16
Section 9.4: Proxies, etc................................................. 17
Section 9.5: Reports...................................................... 17
Section 9.6: Inspection of Records........................................ 17
Section 9.7: Voting Powers................................................ 17
Section 9.8: Series of Interests.......................................... 18
<PAGE>
<CAPTION>
<S> <C> <C>
Section 9.9: Holder Action by Written Consent............................. 19
Section 9.10: No Pre-emptive Rights; Derivative Suits...................... 20
ARTICLE X
Duration; Termination of Trust; Amendment; Mergers;
Section 10.1: Duration..................................................... 20
Section 10.2: Termination of Trust......................................... 20
Section 10.3: Amendment Procedure.......................................... 21
Section 10.4: Merger, Consolidation, Conversion and Sale of Assets......... 21
ARTICLE XI
Miscellaneous
Section 11.1: Certificate of Designation; Agent for Service of Process..... 22
Section 11.2: Governing Law................................................ 22
Section 11.3: Counterparts................................................. 22
Section 11.4: Reliance by Third Parties.................................... 22
Section 11.5: Provision in Conflict With Law or Regulations................ 23
Section 11.6: Trust Only................................................... 23
Section 11.7: Withholding.................................................. 23
Section 11.8: Headings and Construction.................................... 23
</TABLE>
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NATIONS ANNUITY TRUST
This DECLARATION OF TRUST of the Nations Annuity Trust is
made on the 5th day of February, 1998 by the parties signatory hereto,
as trustees (such persons, so long as they shall continue in office in
accordance with the terms of this Declaration of Trust, and all other
persons who at the time in question have been duly elected or appointed
as trustees in accordance with the provisions of this Declaration of
Trust and are then in office, in their capacity as trustees hereunder,
are hereinafter called the "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a business trust
under the law of Delaware for the investment and reinvestment of its
assets; and
WHEREAS, it is proposed that the trust assets be composed
of funds contributed thereto by the holders of interests in the trust
entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and
dispose of the same for the benefit of the holders of interests in the
trust and subject to the following terms and conditions.
ARTICLE I
The Trust
1.1 Name. The name of the trust created hereby (the
"Trust") shall be "Nations Annuity Trust," and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the
word "Trust" wherever hereinafter used) shall not refer to the Trustees
in their individual capacities or to the officers, agents, employees or
holders of interest in the Trust. However, should the Trustees determine
that the use of the name of the Trust is not advisable, they may select
such other name for the Trust as they deem proper and the Trust may hold
its property and conduct its activities under such other name. Any name
change shall become effective upon the execution by a majority of the
then Trustees of an instrument setting forth the new name. Any such
instrument
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shall not require the approval of the holders of interests in the Trust,
but shall have the status of an amendment to this Declaration.
1.2 Trust Purpose. The purpose of the Trust is to conduct,
operate and carry on the business of an open-end management investment
company registered under the 1940 Act.
1.3 Definitions. As used in this Declaration, the
following terms shall have the following meanings:
The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder, as adopted or amended from time to time.
The terms "Affiliated Person", "Assignment" and
"Interested Person" shall have the meanings given them in the 1940 Act.
"Administrator" shall mean any party furnishing services
to the Trust pursuant to any administrative services contract described
in Section 4.1 hereof.
"By-Laws" shall mean the By-Laws of the Trust as amended
from time to time.
"Class" or "Class of Shares" refers to the division of
Shares representing any series into two or more classes.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations thereunder, as
adopted or amended from time to time.
"Commission" shall mean the Securities and Exchange Commission.
"Declaration" shall mean this Declaration of Trust as
amended from time to time. References in this Declaration to
"Declaration", "hereof", "herein" and "hereunder" shall be deemed to
refer to the Declaration rather than the article or section in which
such words appear.
"DBTA" shall mean the Delaware Business Trust Act, Del.
Code. Ann. tit. 12, ss.ss. 3801-3822, as amended from time to time.
"Fiscal Year" shall mean an annual period as determined by
the Trustees unless otherwise provided by the Code or applicable
regulations.
"Holders" shall mean as of any particular time any or all
holders of record of Interests in the Trust or in Trust Property, as the
case may be, at such time.
"Institutional Investor(s)" shall mean any registered
broker/dealer, regulated investment company, segregated asset account,
foreign investment company, common or commingled trust fund, group trust
or similar organization or entity that is an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933.
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"Interest(s)" shall mean the interest of a Holder in the
Trust or in Trust Property, as the case may be, including all rights,
powers and privileges accorded to Holders in this Declaration.
"Interested Person" shall have the same meaning as that
described in Section 2(a)(19) of the Investment Company Act of 1940 as
amended (the "1940 Act").
"Investment Adviser" shall mean any party furnishing
services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a
meeting of the Holders of Interests in the Trust, or in any series
thereof, of the lesser of (A) 67% or more of the Interests present or
represented at such meeting, provided the Holders of more than 50% of
the Interests in the Trust, or the affected series, are present or
represented by proxy or (B) more than 50% of the Interests in the Trust,
or the affected series.
"Person" shall mean and include individuals, corporations,
partnerships, limited liability companies, trusts, associations, joint
ventures and other entities, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"Registration Statement" shall mean the currently
effective Registration Statement of the Trust under the 1940 Act.
"Trust Property" shall mean as of any particular time any
and all property, real or personal, tangible or intangible, which at
such time is owned or held by or for the account of the Trust or the
Trustees. The Trustees may authorize the division of Trust Property into
two or more series, in accordance with the provisions of Section 9.8
hereof, in which case all references in this Declaration to the Trust,
Trust Property, Interests therein or Holders thereof shall be deemed to
refer to each such series, as the case may be, except as the context
otherwise requires. Any series of Trust Property shall be established
and designated, and the variations in the relative rights and
preferences as between the different series shall be fixed and
determined, by the Trustees. The voting rights of Interests in the Trust
Property shall be governed by Section 18(f)(2) of the 1940 Act and Rule
18f-2 thereunder, as amended from time to time, or upon repeal thereof,
in such other manner as the Trustees shall establish in the Trust's
By-Laws.
"Series" or "Series of Interest" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Interests of the Trust
representing the beneficial interest of Holders in such respective
portfolios.
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ARTICLE II
Trustees
2.1 Number and Qualification. The number of Trustees shall
be fixed from time to time by written instrument signed by a majority of
the Trustees so fixed then in office, provided, however, that the number
of Trustees shall in no event be less than three or more than fifteen.
Any vacancy created by an increase in Trustees may be filled by the
appointment of an individual having the qualifications described in this
Article made by a written instrument signed by a majority of the
Trustees then in office. Any such appointment shall not become
effective, however, until the individual named in the written instrument
of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration. No
reduction in the number of Trustees shall have the effect of removing
any Trustee from office. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by this Declaration. A Trustee shall be
an individual at least 21 years of age who is not under legal
disability.
2.2 Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of the Holders, shall
(except in the event of resignations or removals or vacancies pursuant
to Section 2.3 or 2.4 hereof) hold office until his or her successor has
been elected at such meeting and has qualified to serve as Trustee, as
required under the 1940 Act. Beginning with the Trustees elected at the
first meeting of Holders, each Trustee shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided
unless such Trustee resigns or is removed as provided in Section 2.3
below.
2.3 Resignation and Removal. Any Trustee may resign
(without need for prior or subsequent accounting) by an instrument in
writing signed by him or her and delivered or mailed to the Chairman, if
any, the President or the Secretary and such resignation shall be
effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed by the affirmative
vote of the Holders of two-thirds (2/3) of the Interests or (provided
the aggregate number of Trustees, after such removal and after giving
effect to any appointment made to fill the vacancy created by such
removal, shall not be less than the number required by Section 2.1
hereof) with cause, by the action of two-thirds of the remaining
Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee due to physical or mental incapacity. Upon the
resignation or removal of a Trustee, or his or her otherwise ceasing to
be a Trustee, he or she shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the death of any Trustee or upon
removal or resignation due to any Trustee's incapacity to serve as
trustee, his or her legal representative shall execute and deliver on
his or her behalf such documents as the remaining Trustees shall require
as provided in the preceding sentence.
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2.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, adjudicated incompetence or other incapacity to perform the
duties of the office, or removal, of a Trustee. No such vacancy shall
operate to annul this Declaration or to revoke any existing agency
created pursuant to the terms of this Declaration. In the case of a
vacancy, the Holders of at least a majority of the Interests entitled to
vote, acting at any meeting of the Holders held in accordance with
Section 9.1 hereof, or, to the extent permitted by the 1940 Act, a
majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so
elected by the Trustees or the Holders shall hold office as provided in
this Declaration.
2.5 Meetings. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Chief Operating Officer, if any, the Secretary, an Assistant Secretary
or any two Trustees. Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed
or otherwise given not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting.
The attendance of a Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Trustee attends a meeting for the
express purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened. The
Trustees may act with or without a meeting. A quorum for all meetings of
the Trustees shall be one-third of the total number of Trustees, but no
less than two Trustees. Unless provided otherwise in this Declaration,
any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a
meeting by written consent of all the Trustees. If there be less than a
quorum present at any meeting of the Trustees, a majority of those
present may adjourn the meeting until a quorum shall have been obtained.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all
meetings of any such committee shall be two or more of the members
thereof, unless the Board shall provide otherwise. Unless provided
otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a
quorum being present) or without a meeting by written consent of all of
the members.
With respect to actions of the Trustees and any committee
of the Trustees, Trustees who are Interested Persons of the Trust or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a
meeting of the Trustees or any committee thereof by means of a
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participating in a meeting pursuant to such communications system shall
constitute presence in person at such meeting, unless the 1940 Act
specifically requires the Trustees to act "in person," in which case
such term shall be construed consistent with Commission or staff
releases or interpretations.
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2.6 Officers; Chairman of the Board. The Trustees shall,
from time to time, elect a President, a Secretary and a Treasurer. The
Trustees shall elect or appoint, from time to time, a Chairman of the
Board who shall preside at all meetings of the Trustees and carry out
such other duties as the Trustees shall designate. The Trustees may
elect or appoint or authorize the President to appoint such other
officers or agents with such powers as the Trustees may deem to be
advisable. The Chairman of the Board shall be and the President,
Secretary and Treasurer may, but need not, be a Trustee.
2.7 By-Laws. The Trustees may adopt and, from time to time,
amend or repeal the By-Laws for the conduct of the business of the
Trust.
ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust
Property and business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may
perform such acts as they deem, in their sole discretion, to be proper,
convenient or incidental for conducting the business of the Trust. The
enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustee may be
exercised without order of or recourse to any court.
3.2 Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business
of an investment company;
(b) subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise deal in or dispose of the United
States and foreign currencies and related instruments including forward
contracts, and securities, including, common and preferred stocks,
warrants, bonds, debentures, time notes and all other evidences of
indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities,
options, futures contracts, and other securities, shares or interests,
including, without limitation, those issued, guaranteed or sponsored by
any state, territory or possession of the United States and the District
of Columbia and their political subdivisions, agencies and
instrumentalities, or by the United States Government, any foreign
government, or any agency, instrumentality or political subdivision of
the United States Government or any foreign government, or international
instrumentalities, or by any bank, savings institution, corporation or
other business entity organized under the laws of the United States or
under foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with
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power to designate one or more persons, firms, associations, or
corporations to exercise any of said rights, powers and privileges in
respect of any of said instruments; and the Trustees shall be deemed to
have the foregoing powers with respect to any additional securities in
which the Trustees may determine to invest.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust, nor
shall the Trustees be limited by any law limiting the investments which
may be made by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property
shall be vested in the Trustees as joint tenants except that the
Trustees shall have the power to cause legal title to any Trust Property
to be held by or in the name of one or more of the Trustees, or in the
name of the Trust, or in the name of any other Person on behalf of the
Trust on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter
become a Trustee upon his or her due election and qualification. Upon
the resignation, removal or death of a Trustee he or she shall
automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
3.4 Sale of Interests. Subject to the more detailed
provisions set forth in Articles VII and VIII, the Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in,
Interests including Interests in fractional denominations, and to apply
to any such repurchase, redemption, retirement, cancellation or
acquisition of Interests any funds or other assets of the appropriate
series or class of Interests, whether capital or surplus or otherwise.
3.5 Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets of the Trust,
including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the
power, consistent with their continuing exclusive authority over the
management of the Trust and the Trust Property, to delegate from time to
time to such of their number or to officers, employees or agents of the
Trust the doing of such things and the execution of such instruments
either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.7 Collection and Payment. The Trustees shall have power
to collect all property due to the Trust; and to pay all claims,
including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to
foreclose any
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security interest securing any obligations, by virtue of which any
property is owned to the Trust; and to enter into releases, agreements
and other instruments.
3.8 Expenses. The Trustees shall have the power to incur
and pay any expenses which in the opinion of the Trustees are necessary
or incidental to carry out any of the purposes of this Declaration, and
to pay reasonable compensation from the funds of the Trust to themselves
as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal and brokerage
services, as they in good faith may deem reasonable (and subject to any
limitations in the 1940 Act), and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.9 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust and terminate
such employees or contractual relationships as they consider
appropriate; (b) to cause the Trust or any series thereof to enter into
joint ventures, partnerships, limited liability companies and any other
combinations or associations; (c) purchase, and pay for out of Trust
Property, insurance policies (including, but not limited to, fidelity
bonding and errors and omission) insuring the Investment Adviser,
Administrator, distributor, Holders, Trustees, officers, employees,
agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or
not the Trust would have the power to indemnify such Person against
liability; (d) establish pension, profit-sharing and other retirement,
incentive and benefit plans for any Trustees, officers, employees and
agents of the Trust; (e) to the extent permitted by law, indemnify any
Person with whom the Trust has dealings, including the Investment
Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such
extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal
Year of the Trust, or any series thereof, and the method by which its
accounts shall be kept; and (h) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument
executed on behalf of the Trust.
3.10 Further Powers. The Trustees shall have power to
conduct the business of the Trust and carry on its operations in any and
all of its branches and maintain offices, whether within or without the
State of Delaware, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign
countries, and to do all such other things and execute all such
instruments as they deem necessary, proper, desirable, convenient or
incidental in order to promote the interests of the Trust although such
things are not herein specifically mentioned. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration,
the presumption shall be in favor of a grant of power to the Trustees.
The Trustees will not be required to obtain any court order to deal with
Trust Property.
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ARTICLE IV
Investment Advisory, Administrative Services
and Distribution Arrangements
4.1 Investment Advisory and Other Arrangements. The
Trustees may in their discretion, from time to time, enter into
investment advisory, administrative services (including transfer and
dividend disbursing agency services), distribution, fiduciary (including
custodian), placement agent, shareholder servicing and distribution or
other service contracts or agreements whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such
investment advisory, administrative, distribution, fiduciary, placement
agent, shareholder servicing and/or other services as the Trustee shall,
from time to time, consider desirable or convenient and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may
authorize any Investment Adviser (subject to such general or specific
instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
4.2 Parties to Contract. Any contract or agreement of the
character described in Section 4.1 of this Article IV or in the By-Laws
of the Trust may be entered into with any Person, although one or more
of the Trustees or officers of the Trust may be an employee, officer,
director, trustee, shareholder, or member of such other party to the
contract or agreement, and no such contract or agreement shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable
merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or agreement or accountable
for any profit realized directly or indirectly therefrom, provided that
the contract or agreement when entered into was reasonable and fair and
not inconsistent with the provisions of this Article IV or the By-Laws.
ARTICLE V
Limitations of Liability
5.1 No Personal Liability of Trustees, Officers, Employees;
Liability of Holders; Indemnification. No Trustee, officer or employee
of the Trust, when acting in such capacity, shall be subject to any
personal liability whatsoever, in his or her official or individual
capacity to any Person, other than the Trust or its Holders, in
connection with Trust Property or the affairs of the Trust, save only
that arising from his or her bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duty to such Person; and
all such Persons shall look solely
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to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer or employee of the Trust arising in connection with the
affairs of the Trust.
5.2 Non-liability of Trustees, etc. No Trustee, officer or
employee of the Trust shall be liable to the Trust, Holders of Interests
therein, or to any Trustee, officer or employee thereof for any action
or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust)
except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties.
5.3 Mandatory Indemnification. The Trust shall indemnify
each of its Trustees, officers and employees (including Persons who
serve at its request as directors, officers or trustees of another
organization in which it has any interest, as a shareholder, creditor or
otherwise) against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromise, as fines and penalties, and
as counsel fees) reasonably incurred by him or her in connection with
the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, in which he or she may be involved or with
which he or she may be threatened, while in office or thereafter, by
reason of his or her being or having been such a Trustee, officer or
employee, except with respect to any matter as to which he or she shall
have been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duties; provided,
however, that as to any matter disposed of by a compromise payment by
such Person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall
be provided unless there has been a determination that such Person did
not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office by the court or other body approving the settlement or other
disposition or by a reasonable determination, based upon a review of
readily available facts (as opposed to a full trial type inquiry), that
he or she did not engage in such conduct by written opinion from
independent legal counsel approved by the Trustees. The rights accruing
to any Person under these provisions shall not exclude any other right
to which he or she may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursement granted herein or in
Section 5.1 or to which he or she may be otherwise entitled except out
of the Trust Property. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that
the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he
or she is not entitled to such indemnification.
5.4 No Bond Required of Trustees. No Trustee shall, as
such, be obligated to give any bond or surety or other security for the
performance of any of his or her duties hereunder.
5.5 No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, or other Person dealing with the Trustees or
any officer or employee of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the
Trustees or by said officer or employee or be liable for the application
of money or property paid, loaned, or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate or other interest or undertaking of
the Trust, and every other act or thing whatsoever executed in
connection with the Trust shall be
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conclusively taken to have been executed or done by the executors
thereof only in their capacity as Trustees, officers, employees or
agents of the Trust. Every written obligation, contract, instrument,
certificate or other interest or undertaking of the Trust made or sold
by the Trustees or by any officer, employee or agent of the Trust, in
his or her capacity as such, shall contain an appropriate recital to the
effect that the Trustee, officer, employee and agent of the Trust shall
not personally be bound by or liable thereunder, nor shall resort be had
to their private property for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to
the Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to
impose personal liability on any of the Trustees, officers, employees or
agents of the Trust. The Trustees may maintain insurance for the
protection of the Trust Property, Holders, Trustees, officers, employees
and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable.
5.6 Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his or her duties, be
fully and completely justified and protected with regard to any act or
any failure to act resulting from reliance in good faith upon the books
of account or other records of the Trust, upon an opinion of counsel, or
upon reports made to the Trust by any of its officers or employees or by
any Investment Adviser, Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI
Interests in the Trust
6.1 Interests. The Interests of the Trust shall be issued
in one or more series as the Trustees may, without Holder approval,
authorize. Each series shall be preferred over all other series in
respect of the assets allocated to that series and shall represent a
separate investment portfolio of the Trust. The beneficial interest in
each series at all times shall be divided into Interests, with or
without par value as the Trustees may from time to time determine, each
of which shall, except as provided in the following sentence, represent
an equal proportionate interest in the series with each other Interest
of the same series, none having priority or preference over another. The
Trustees may, without Holder approval, divide Interests of any series
into two or more classes, Interests of each such class having such
preferences and special or relative rights and privileges (including
conversion right, if any) as the Trustees may determine. The number of
Interests authorized shall be unlimited, and the Interests so authorized
may be represented in part by fractional Interests. From time to time,
the Trustees may divide, without Holder approval, or combine the
Interests of any series or class into a greater or lesser number without
thereby changing the proportionate beneficial interests in the series or
class.
6.2 Rights of Holders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the
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Trustees, and the Holders shall have no right or title therein other
than the beneficial interest conferred by their Interests and they shall
have no right to call for any partition or division of any property,
profits or rights of the Trust. The Interests shall be personal property
giving only the rights in this Declaration specifically set forth.
6.3 Purchase of or Increase in Interests. The Trustees, in
their discretion, may, from time to time, without a vote of the Holders,
permit the purchase of Interests by such party or parties (or increase
in the Interest of a Holder) and for such type of consideration,
including cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may
determine in their sole discretion, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses.
6.4 Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the names
and addresses of the Holders. Each such register shall be conclusive as
to who are the Holders of each series of Interests in the Trust and who
shall be entitled to payments of distributions or otherwise to exercise
or enjoy the rights of Holders. No Holder shall be entitled to receive
payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the
Trustees as shall keep the said register for entry thereon.
6.5 Notices. Any and all notices to which any Holder
hereunder may be entitled and any and all communications shall be deemed
duly served or given if mailed, postage prepaid, addressed to any Holder
of record at its last known address as recorded on the register of the
Trust.
ARTICLE VII
Distributions
7.1 Distributions. The Trustees shall distribute
periodically to the Holders of each series of Interests an amount
approximately equal to the net income of that series, determined by the
Trustees or as they may authorize and as herein provided. Distributions
of income may be made in one or more payments, which shall be in
Interests, cash or otherwise, and on a date or dates and as of a record
date or dates determined by the Trustees. At any time and from time to
time in their discretion, the Trustees also may cause to be distributed
to the Holders of any one or more series as of a record date or dates
determined by the Trustees, in Interests, cash or otherwise, all or part
of any gains realized on the sale or disposition of the assets of the
series or all or part of any other property of the Trust attributable to
the series. Each distribution pursuant to this Section 7.1 shall be made
ratably according to the number of Interests of the series held by the
several Holders on the record date for such distribution, except to the
extent otherwise required or permitted by the preferences and special or
relative rights and privileges of any classes of Interests of that
series, and any distribution to the Holders of a particular class of
Interests shall be made to such Holders pro rata in proportion to the
number of Interests of such
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class held by each of them. No distribution need be made on Interests
purchased pursuant to orders received, or for which payment is made,
after such time or times as the Trustees may determine.
7.2 Determination of Net Income. In determining the net
income of each series or class of Interests for any period, there shall
be deducted from income for that period (a) such portion of all charges,
taxes, expenses and liabilities due or accrued as the Trustees shall
consider properly chargeable and fairly applicable to income for that
period or any earlier period and (b) whatever reasonable reserves the
Trustees shall consider advisable for possible future charges, taxes,
expenses and liabilities which the Trustees shall consider properly
chargeable and fairly applicable to income for that period or any
earlier period. The net income of each series or class for any period
may be adjusted for amounts included on account of net income in the net
asset value of Interests issued or redeemed or repurchased during that
period. In determining the net income of a series or class for a period
ending on a date other than the end of its fiscal year, income may be
estimated as the Trustees shall deem fair. Gains on the sale or
disposition of assets shall not be treated as income, and losses shall
not be charged against income unless appropriate under applicable
accounting principles, except in the exercise of the discretionary
powers of the Trustees. Any amount contributed to the Trust which is
received as income pursuant to a decree of any court of competent
jurisdiction shall be applied as required by the said decree.
7.3 Dividends and Distributions from Assets Only. No
dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with
respect to the Interests of any series shall be effected by the Trust
other than from the assets of such series.
ARTICLE VIII
Redemptions
8.1 Redemptions. Any Holder shall be entitled to require
the Trust to redeem and the Trust shall be obligated to redeem at the
option of such Holder all or any part of the Interests owned by said
Holder, at the redemption price, pursuant to the method, upon the terms
and subject to the conditions hereinafter set forth:
(a) Certificates for Interests, if issued, shall
be presented for redemption in proper form to the Trust or the agent of
the Trust appointed for such purpose, and these shall be presented with
a written request that the Trust redeem all or any part of the Interests
represented thereby.
(b) The redemption price per Interest shall be the
net asset value per Interest when next determined by the Trust at such
time or times as the Trustees shall designate, following the time of
presentation of certificates of Interests, if issued, and an appropriate
request for redemption, or such other time as the Trustees may designate
in accordance with any
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provision of the 1940 Act, or any rule or regulation made or adopted by
any securities association registered under the Securities Exchange Act
of 1934, as determined by the Trustees, less any applicable charge or
fee imposed from time to time as determined by the Trustees.
(c) Net asset value of each series or class of
Interests (for the purpose of issuance of Interests as well as
redemptions thereof) shall be determined by dividing:
(i) the total value of the assets of such
series or class determined as provided in paragraph (d) below
less, to the extent determined by or pursuant to the
direction of the Trustees in accordance with generally
accepted accounting principles, all debts, obligations and
liabilities of such series or class (which debts, obligations
and liabilities shall include, without limitation of the
generality of the foregoing, any and all debts, obligations,
liabilities, or claims, of any and every kind and nature,
fixed, accrued and otherwise, including the estimated accrued
expenses of management and supervision, administration and
distribution and any reserves or charges for any or all of
the foregoing, whether for taxes, expenses, or otherwise, and
the price of Interests redeemed but not paid for) but
excluding the Trust's liability upon its Interests and its
surplus, by
(ii) the total number of Interests of such
series or class outstanding.
The Trustees are empowered, in their absolute
discretion, to establish other methods for determining such net asset
value whenever such other methods are deemed by them to be necessary to
enable the Trust to comply with applicable law, or are deemed by them to
be desirable, provided they are not inconsistent with any provision of
the 1940 Act.
(d) In determining for the purposes of this
Declaration of Trust the total value of the assets of each series or
class of Interests at any time, investments and any other assets of such
series or class shall be valued in such manner as may be determined from
time to time by or pursuant to a resolution of the Trustees.
(e) Payment of the redemption price by the Trust
may be made either in cash or in securities or other assets at the time
owned by the Trust or partly in cash and partly in securities or other
assets at the time owned by the Trust. The value of any part of such
payment to be made in securities or other assets of the Trust shall be
the value employed in determining the redemption price. Payment of the
redemption price shall be made on or before the seventh day following
the day on which the Interests are properly presented for redemption
hereunder, except that delivery of any securities included in any such
payment shall be made as promptly as any necessary transfers on the
books of the issuers whose securities are to be delivered may be made
and, except as postponement of the date of payment may be permissible
under the 1940 Act.
Pursuant to the resolution of the Trustees, the
Trust may deduct from the payment made for any Interests redeemed a
liquidating charge not in excess of an amount determined by the Trustees
from time to time.
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(f) The right of any Holder of Interests
redeemed by the Trust as provided in Article VII to receive dividends or
distributions thereon and all other rights of such Holder with respect
to such Interests shall terminate at the time as of which the redemption
price of such Interests is determined, except the right of such Holder
to receive (i) the redemption price of such Interests from the Trust in
accordance with the provisions hereof, and (ii) any dividend or
distribution to which such Holder previously had become entitled as the
record holder of such Interests on the record date for such dividend or
distribution.
(g) Redemption of Interests by the Trust is
conditional upon the Trust having funds or other assets legally
available therefor.
(h) The Trust, either directly or through an
agent, may repurchase its Interests, out of funds legally available
therefor, upon such terms and conditions and for such consideration as
the Trustees shall deem advisable, by agreement with the owner at a
price not exceeding the net asset value per Interest as determined by or
pursuant to the order of the Trustees at such time or times as the
Trustees shall designate, less any applicable charge, if and as fixed by
the Trustees from time to time, and to take all other steps deemed
necessary or advisable in connection therewith.
(i) Interests purchased or redeemed by the Trust
shall be cancelled or held by the Trust for reissue, as the Trustees
from time to time may determine.
(j) The obligations set forth in this Article VIII
may be suspended or postponed: (1) for any period (i) during which the
New York Stock Exchange is closed other than for customary weekend and
holiday closing, or (ii) during which trading on the New York Stock
Exchange is restricted, (2) for any period during which an emergency
exists as a result of which (i) the disposal by the Trust of investments
owned by it is not reasonably practicable, or (ii) it is not reasonably
practicable for the Trust fairly to determine the value of its net
assets, or (3) for such other periods as the Commission or any successor
governmental authority by order may permit.
Notwithstanding any other provision of this Article
VIII, if certificates representing such Interests have been issued, the
redemption or repurchase price need not be paid by the Trust until such
certificates are presented in proper form for transfer to the Trust or
the agent of the Trust appointed for such purpose; however, the
redemption or repurchase shall be effective, in accordance with the
resolution of the Trustees, regardless of whether or not such
presentation has been made to time by the Trustees.
8.2 Redemptions at the Option of the Trust. The Trust shall
have the right at its option and at any time to redeem Interests of any
Holder at the net asset value thereof as determined in accordance with
Article VIII of this Declaration of Trust: (i) if at such time such
Holder owns fewer Interests than, or Interests having an aggregate net
asset value of less than, an amount determined from time to time by the
Trustees; or (ii) to the extent that such Holder owns Interests of a
particular series or class of Interests equal to or in excess of a
percentage of the outstanding Interests of that series or class
determined from time to time by the Trustees; or
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(iii) to the extent that such Holder owns Interests of the Trust
representing a percentage equal to or in excess of such percentage of
the aggregate number of outstanding Interests of the Trust or the
aggregate net asset value of the Trust determined from time to time by
the Trustees.
8.3 Redemptions and Repurchases from Assets Only. No
redemption or repurchase of Interests of any series shall be effected by
the Trust other than from the assets of such series.
ARTICLE IX
Holders
9.1 Meetings of Holders. Meetings of the Holders may be
called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Holders holding, in the aggregate,
not less than 10% of the Interests in the Trust, or, with respect to a
Meeting of the Holders of one or more series, not less than 10% of the
Interests of the affected series, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall
be held within or without the State of Delaware on such day and at such
time as the Trustees shall designate. Holders of one-third of the
Interests in the Trust, or with respect to a Meeting of the Holders of
one or more series, holders of one-third of the Interests of that
series, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the
1940 Act or other applicable law or by this Declaration or the By-Laws
of the Trust. If a quorum is present at a meeting, an affirmative vote
by the Holders present, in person or by proxy, holding more than 50% of
the total Interests of the Holders present, either in person or by
proxy, at such meeting constitutes the action of the Holders, unless the
1940 Act, other applicable law, this Declaration or by the By-laws of
the Trust requires a greater number of affirmative votes.
9.2 Notice of Meetings. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes of the
meeting, shall be given by the Trustees either by presenting it
personally to a Holder, leaving it at his or her residence or usual
place of business, or by mailing it to a Holder, at his or her
registered address, at least 20 business days and not more than 90
business days before the meeting. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
Holder at his or her address as it is registered with the Trust, with
postage thereon prepaid. At any such meeting, any business properly
before the meeting may be considered whether or not stated in the notice
of the meeting. Any adjourned meeting may be held as adjourned without
further notice.
9.3 Record Date for Meetings For the purpose of determining
the Holders who are entitled to notice of any to vote at any meeting, or
to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90
calendar days prior to the date of any meeting of the Holders or payment
of distributions or other action, as the case may be, as a record date
for the determination of the persons to be treated as Holders of record
for such purposes.
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9.4 Proxies, etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with
the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such
vote shall be taken. Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees
or one or more of the officers of the Trust. Only Holders of record
shall be entitled to vote. Each Holder shall be entitled to a vote
proportionate to its Interest in the Trust. When Interests are held
jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Interest, but if more than one of
them shall be present at such meeting in person or by proxy, and such
joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder shall be
deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. If the Holder
is a minor or a person of unsound mind, and subject to guardianship or
to the legal control of any other person regarding the charge or
management of its Interest, he or she may vote by his or her guardian or
such other person appointed or having such control, and such vote may be
given in person or by proxy.
9.5 Reports. The Trustees shall cause to be prepared, at
least annually, a report of operations containing a balance sheet and
statement of income and undistributed income of the Trust prepared in
conformity with generally accepted accounting principles and an opinion
of an independent public accountant on such financial statements. The
Trustees shall, in addition, furnish to the Holders at least
semi-annually, interim reports containing an unaudited balance sheet as
of the end of such period and an unaudited statement of income and
surplus for the period from the beginning of the current Fiscal Year to
the end of such period.
9.6 Inspection of Records. The records of the Trust shall
be open to inspection by Holders during normal business hours and for
any purpose not harmful to the Trust.
9.7 Voting Powers. The Holders shall have power to vote
only (i) for the election of Trustees as contemplated by Section 2.2
hereof, (ii) with respect to any investment advisory contract as
contemplated by Section 4.1 hereof, (iii) with respect to termination of
the Trust as provided in Section 10.2 hereof, (iv) with respect to any
amendment of the Declaration to the extent and as provided in Section
10.3 hereof, (v) with respect to any merger, consolidation, conversion
or sale of assets as provided in Section 10.4 hereof, (vi) with respect
to incorporation of the Trust to the extent and as provided in Section
10.5 hereof, and (vii) with respect to such additional matters relating
to the Trust as may be required by the 1940 Act, DBTA, or any other law,
the Declaration, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as and when the
Trustees may consider necessary or desirable. Each Holder shall be
entitled to vote based on the ratio its Interest bears to the Interests
of all Holders entitled to vote. Until Interests are issued, the
Trustees may exercise all rights of Holders and may take any action
required by law, the Declaration or the By-Laws to be taken by Holders.
The By-Laws may include further provisions for Holders' votes and
meetings and related matters.
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9.8 Series of Interests. If the Trustees shall divide the
Trust Property into two or more series the following provisions shall be
applicable:
(a) All consideration received by the Trust for
the issue or sale of Interests of a particular series together with all
Trust Property in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
series for all purposes, subject only to the rights of creditors of such
series and except as may otherwise be required by applicable tax laws,
and shall be so recorded upon the books of account of the Trust. In the
event that there is any Trust Property, or any income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series established and
designated from time to time in such manner and on such basis as they,
in their sole discretion, deem fair and equitable. Each such allocation
by the Trustees shall be conclusive and binding upon the Holders of all
Interests for all purposes.
(b) The Trust Property belonging to each particular
series shall be charged with the debts, liabilities and obligations of
the Trust in respect of that series and all expenses, costs, charges and
reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable.
Each allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the Holders of all
Interests for all purposes. The Trustees shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which items
shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Holders. The assets of a particular series of the Trust shall, under no
circumstances, be charged with the debts, liabilities, obligations and
expenses attributable to any other series of the Trust. All persons
extending credit to, or contracting with or having any claim against a
particular series of the Trust shall look only to the assets of that
particular series for payment of such credit, contract or claim.
(c) The power of the Trustees to pay dividends
and make distributions shall be governed by Article VII of this
Declaration with respect to the Interests in the Trust immediately prior
to the establishment of two or more series. With respect to any series,
dividends and distributions on Interests may be paid with such frequency
as the Trustees may determine, which may be daily or otherwise, pursuant
to a standing resolution or resolution adopted only once or with such
frequency as the Trustees may determine, to the Holders of Interests in
that series, from such of the income and capital gains, accrued or
realized, from the Trust Property belonging to that series as the
Trustee may determine, after providing for actual and accrued
liabilities belonging to that series. All dividends and distributions on
Interests in a particular series shall be distributed pro rata to the
Holders of Interests in that series in proportion
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to the total outstanding Interests in that series held by such Holders
at the date and time of record establishment for the payment of such
dividends or distribution.
(d) The Interests in a series of the Trust shall
represent beneficial interests in the Trust Property belonging to such
series. Each Holder of Interests in a series shall be entitled to
receive its pro rata share of distributions of income and capital gains
made with respect to such series. Upon reduction or withdrawal of its
Interests or indemnification for liabilities incurred by reason of being
or having been a Holder of Interests in a series, such Holder shall be
paid solely out of the funds and property of such series of the Trust.
Upon liquidation or termination of a series of the Trust, Holders of
Interests in such series shall be entitled to receive a pro rata share
of the Trust Property belonging to such series. A Holder of Interests in
a particular series of the Trust shall not be entitled to participate in
a derivative or class action lawsuit on behalf of any other series or
the Holders of Interests in any other series of the Trust.
(e) Notwithstanding any other provision hereof,
if the Trust Property has been divided into two or more series, then on
any matter submitted to a vote of Holders of Interests in the Trust, all
Interests then entitled to vote shall be voted by individual series,
except that (1) when required by the 1940 Act, Interests shall be voted
in the aggregate and not by individual series, and (2) when the Trustees
have determined that the matter affects only the interests of Holders of
Interests in a limited number of series, then only the Holders of
Interests in such series shall be entitled to vote thereon. Except as
otherwise provided in this Article IX, the Trustees shall have the power
to determine the designations, preferences, privileges, limitations and
rights, including voting and dividend rights, of each series of
Interests.
(f) The establishment and designation of any
series of Interests shall be effective upon the execution by a majority
of the then Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such series,
or as otherwise provided in such instrument. The Trustees may, in any
such instrument, designate a separate business purpose or investment
objective for any such series. At any time that there are no Interests
outstanding of any particular series previously established and
designated, the Trustees may by an instrument executed by a majority of
their number terminate that series and the establishment and designation
thereof. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
(g) There shall initially be eight series of
Interests designated as the "Nations Balanced Assets Portfolio Series,"
the "Nations Disciplined Equity Portfolio Series," the "Nations
International Growth Portfolio Series," the "Nations Managed Index
Portfolio Series," the "Nations Managed SmallCap Index Portfolio
Series," the "Nations Marsico Growth & Income Portfolio Series," the
"Nations Marsico Focused Equities Portfolio Series," and the "Nations
Value Portfolio Series." Each such series will consist of an unlimited
number of Interests, and shall have the rights and privileges as set
forth herein.
9.9 Holder Action by Written Consent. Any action which may
be taken by Holders may be taken without a meeting if Holders holding
more than 50% of the total Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
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Declaration) shall consent to the action in writing and the written
consents are filed with the records of the meetings of Holders. Such
consents shall be treated for all purposes as a vote taken at a meeting
of Holders.
9.10 No Pre-emptive Rights; Derivative Suits. Holders shall
have no pre-emptive or other rights to subscribe for any additional
Interests or other securities issued by the Trust or any series thereof.
No action may be brought by a Holder on behalf of the Trust unless
Holders owning no less than 20% of the then outstanding Interests join
in the bringing of such action.
ARTICLE X
Duration; Termination of Trust;
Amendment; Mergers; Etc.
10.1 Duration. Subject to possible termination or
dissolution in accordance with the provision of Section 10.2, the Trust
created hereby shall continue perpetually pursuant to Section 3808 of
the DBTA.
10.2 Termination of Trust.
(a) The Trust may be terminated (i) by the
affirmative vote of the Holders of not less than two-thirds of the
Interests in the Trust at any meeting of the Holders or by an instrument
in writing, without a meeting, signed by a majority of the Trustees and
consented to by the Holders of not less than two-thirds of such
Interests, or (ii) by the Trustees by written notice to the Holders.
Upon any such termination:
(1) The Trust shall carry on no business
except for the purpose of winding up its affairs.
(2) The Trustees shall proceed to wind up
the affairs of the Trust and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, or otherwise dispose of all or
any part of the remaining Trust Property to one or more Persons
at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, or other disposition of all or
substantially all of the Trust Property shall require approval
of the principal terms of the transaction and the nature and
amount of the consideration by the vote of Holders holding more
than 50% of the total Interests entitled to vote.
(3) After paying or adequately providing
for the payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as they
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deem necessary for their protection, the Trustees may distribute
the remaining Trust Property, in cash or in kind or partly each,
among the Holders according to their respective rights.
(b) Upon termination of the Trust and
distribution to the Holders as herein provided, a majority of the
Trustees shall (i) execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination, and
(ii) execute and file with the Delaware Secretary of State a certificate
of cancellation in accordance with the DBTA. Upon termination of the
Trust, the Trustees shall thereon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Holders shall thereupon cease.
10.3 Amendment Procedure.
(a) This Declaration may be amended by the vote
of Holders holding more than 50% of the total Interests entitled to vote
or by any instrument in writing, without a meeting, signed by a majority
of the Trustees and consented to by the vote of Holders holding more
than 50% of the total Interests entitled to vote. The Trustees may also
amend this Declaration without the vote or consent of Holders to change
the name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or
to conform this Declaration to the requirements of the 1940 Act, the
Code, DBTA, or any other applicable Federal laws or regulations, but the
Trustees shall not be liable for failing to do so.
(b) No amendment may be made, under Section 10.3(a)
above, which would change any rights with respect to any Interest in the
Trust by reducing the amount payable thereon upon liquidation of the
Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with a Majority Interests Vote.
(c) A certification in recordable form signed by
a majority of the Trustees setting forth an amendment and reciting that
it was duly adopted by the Holders or by the Trustees as aforesaid or a
copy of the Declaration, as amended, in recordable form, and executed by
a majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such
time as Interests are first sold, this Declaration may be terminated or
amended in any respect by the affirmative vote of a majority of the
Trustees or by an instrument signed by a majority of the Trustees.
10.4 Merger, Consolidation, Conversion and Sale of Assets.
The Trust, or any series thereof, may (i) merge or consolidate with or
into one or more business trusts or other business entities (as defined
in the DBTA) or any other organization formed or organized or existing
under the laws of the State of Delaware or any other state or the United
States or any foreign country or other foreign jurisdiction, (ii)
convert to a common-law trust, a general partnership (including a
registered limited liability partnership), a limited partnership
(including a registered limited liability limited partnership) or a
limited liability company organized, formed or created under the laws of
the State of Delaware, or (iii) sell, lease or exchange all or
substantially all of
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its property, including its good will, in each such case, upon such
terms and conditions and for such consideration when and as authorized
by no less than a majority of the Trustees and, at any meeting of
Holders called for the purpose, by a Majority Interests Vote, or by an
instrument or instruments in writing without a meeting, consented to by
a Majority Interests Vote. In accordance with Section 3815(f) of the
DBTA, an agreement of merger or consolidation may effect any amendment
to the Declaration or By-Laws or effect the adoption of a new
declaration of trust or by-laws of the Trust if the Trust is the
surviving or resulting business trust.
ARTICLE XI
Miscellaneous
11.1 Certificate of Designation; Agent for Service of
Process. The Trust shall file, in accordance with Section 3812 of the
DBTA, in the office of the Secretary of State of the State of Delaware,
a certificate of trust, in the form and with such information required
by Section 3810 by the DBTA and executed in the manner specified in
Section 3811 of the DBTA. In the event the Trust does not have at least
one Trustee qualified under Section 3807(a) of the DBTA, then the Trust
shall comply with Section 3807(b) of the DBTA by having and maintaining
a registered office in Delaware and by designating a registered agent
for service of process on the Trust, which agent shall have the same
business office as the Trust's registered office. The failure to file
any such certificate, to maintain a registered office, to designate a
registered agent for service of process, or to include such other
information shall not affect the validity of the establishment of the
Trust, the Declaration, the By-Laws or any action taken by the Trustees,
the Trust officers or any other Person with respect to the Trust except
insofar as a provision of the DBTA would have governed, in which case
the Delaware common law governs.
11.2 Governing Law. This Declaration is executed by all of
the Trustees and delivered with reference to the DBTA and the laws of
the State of Delaware, and the rights of all parties and the validity
and construction of every provision hereof shall be subject to and
construed according to DBTA and the laws of the State of Delaware
(unless and to the extent otherwise provided for and/or preempted by the
1940 Act or other applicable federal securities laws). Reference shall
be specifically made to DBTA as to the construction of matters not
specifically covered herein or as to which an ambiguity exists (unless
and to the extent otherwise provided for and/or preempted by the 1940
Act or other applicable federal securities laws).
11.3 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such
original counterpart.
11.4 Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to
be a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Holders, (b) the due authorization of the execution of any
instrument or writing, (c) the form
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of any vote passed at a meeting of Trustees or Holders, (d) the fact
that the number of Trustees or Holders present at any meeting or
executing any written instrument satisfies the requirements of this
Declaration, (e) the form of any By-Laws adopted by or the identity of
any officers elected by the Trustees, or (f) the existence of any fact
or facts which in any manner relate to the affairs of the Trust, shall
be conclusive evidence as to the matters so certified in favor of any
person dealing with the Trustees and their successors.
11.5 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act,
the DBTA, or with other applicable laws and regulations, the conflicting
provisions shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall
be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision in any
other jurisdiction or any other provision of this Declaration in any
jurisdiction.
11.6 Trust Only. It is the intention of the Trustees to
create only a business trust under the DBTA with the relationship of
Trustee and beneficial owner between the Trustees and each Holder from
time to time. It is not the intention of the Trustees to create a
general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a
Delaware business trust. Nothing in this Declaration of Trust shall be
construed to make the Holders, either by themselves or with the
Trustees, partners or members of a joint stock association.
11.7 Withholding. Should any Holder be subject to
withholding pursuant to the Code, or any other provision of law, the
Trust shall withhold all amounts otherwise distributable to such Holder
as shall be required by law and any amounts so withheld shall be deemed
to have been distributed to such Holder under this Declaration of Trust.
If any sums are withheld pursuant to this provision, the Trust shall
remit the sums so withheld to and file the required forms with the
Internal Revenue Service, or other applicable government agency.
11.8 Headings and Construction. Headings are placed herein
for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. Whenever the singular number is used herein, the same shall
include the plural; and the neuter, masculine and feminine genders shall
include each other, as applicable.
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IN WITNESS WHEREOF, the undersigned have caused these
presents to be executed as of the 5th day of February, 1998.
/s/ Edmund L. Benson, III
- -------------------------------
Edmund L. Benson, III, Trustee
/s/ James Ermer
- -------------------------------
James Ermer, Trustee
/s/ William H. Grigg
- -------------------------------
William H. Grigg, Trustee
/s/ Thomas F. Keller
- -------------------------------
Thomas F. Keller, Trustee
/s/ Carl E. Mundy, Jr.
- ---------------------------------
Carl E. Mundy, Jr., Trustee
/s/ A. Max Walker
- ---------------------------------
A. Max Walker, Trustee
/s/ Charles B. Walker
- ----------------------------------
Charles B. Walker, Trustee
/s/ Thomas S. Word
- ----------------------------------
Thomas S. Word, Trustee
/s/ James B. Sommers
- ----------------------------------
James B. Sommers, Trustee
24
EXHIBIT 99.B2
AMENDED AND RESTATED
BY-LAWS
OF
NATIONS ANNUITY TRUST
a Delaware Business Trust
February 5, 1998
Principal Place of Business:
One NationsBank Plaza
33rd Floor
Charlotte, North Carolina 28255
<PAGE>
NATIONS ANNUITY TRUST
BY-LAWS
These By-Laws are made as of the 5th day of February,
1998, and adopted pursuant to Section 2.7 of the Amended and Restated
Declaration of Trust of NATIONS ANNUITY TRUST, dated February 5, 1998,
as from time to time amended (hereinafter called the "Declaration"). All
words and terms capitalized in these By-Laws shall have the meaning or
meanings set forth for such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1 Annual Meeting. An annual meeting of the
Holders of Interests in the Trust, which may be held on such date and at
such hour as may from time to time be designated by the Board of
Trustees (the "Trustees") and stated in the notice of such meeting, is
not required to be held unless certain actions must be taken by the
Holders as set forth in Section 9.7 of the Declaration, or except when
the Trustees consider it necessary or desirable.
Section 1.2 Chairman. The President or, in his absence,
the Chief Operating Officer shall act as chairman at all meetings of the
Holders and, in the absence of both of them, the Trustee or Trustees
present at the meeting may elect a temporary chairman for the meeting,
who may be one of themselves or an officer of the Trust.
Section 1.3 Proxies; Voting. Holders may vote either in
person or by duly executed proxy and each Holder shall be entitled to a
vote proportionate to his Interest in the Trust, all as provided in
Article IX of the Declaration. No proxy shall be valid after eleven (11)
months from the date of its execution, unless a longer period is
expressly stated in such proxy.
Section 1.4 Fixing Record Dates. For the purpose of
determining the Holders who are entitled to notice of or to vote or act
at a meeting, including any adjournment thereof, or who are entitled to
participate in any distributions, or for any other proper purpose, the
Trustees may from time to time fix a record date in the manner provided
in Section 9.3 of the Declaration. If the Trustees do not, prior to any
meeting of the Holders, so fix a record date, then the date of mailing
notice of the meeting shall be the record date.
Section 1.5 Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election
to act at the meeting or any adjournment thereof. If Inspectors of
Election are not so appointed, the chairman, if any, of any meeting of
the Holders may, and on the request of any Holder or his proxy shall,
appoint Inspectors of Election of the meeting. The number of Inspectors
shall be either one or three. If appointed at the meeting on the request
of one or more Holders or proxies, a Majority Interests Vote shall
determine whether one or three Inspectors are to be appointed, but
failure to allow such determination by the
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Holders shall not affect the validity of the appointment of Inspectors
of Election. In case any person appointed as Inspector fails to appear
or fails or refuses to act, the vacancy may be filled by appointment
made by the Trustees in advance of the convening of the meeting or at
the meeting by the person acting as chairman. The Inspectors of Election
shall determine the Interests owned by Holders, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or
consents, shall hear and determine all challenges and questions in any
way arising in connection with the right to vote, shall count and
tabulate all votes or consents, determine the results, and do such other
acts as may be proper to conduct the election or vote with fairness to
all Holders. If there are three Inspectors of Election, the decision,
act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any,
of the meeting, or of any Holder or his proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any facts
found by them.
Section 1.6 Records at Meetings of Holders. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary
or other proper agent of the Trust, as of the record date of the
meeting. Such list of Holders shall contain the name of each Holder in
alphabetical order, the Holder's address and Interests owned by such
Holder. Holders shall have the right to inspect books and records of the
Trust during normal business hours and for any purpose not harmful to
the Trust.
ARTICLE II
Trustees
Section 2.1 Annual and Regular Meetings. The Trustees
shall hold an Annual Meeting of the Trustees for the election of
officers and the transaction of other business which may come before
such meeting. Regular meetings of the Trustees may be held without call
or notice at such place or places and times as the Trustees may by
resolution provide from time to time.
Section 2.2 Special Meetings. Special Meetings of the
Trustees shall be held upon the call of the chairman, if any, the
President, the Chief Operating Officer, the Secretary, an Assistant
Secretary or any two Trustees, at such time, on such day and at such
place, as shall be designated in the notice of the meeting.
Section 2.3 Notice. Notice of a meeting shall be given by
mail (which term shall include overnight mail) or by telegram (which
term shall include a cablegram or telefacsimile) or delivered personally
(which term shall include notice by telephone). If notice is given by
mail, it shall be mailed not later than 72 hours preceding the meeting
and if given by telegram or personally, such notice shall be delivered
not later than 24 hours preceding the meeting. Notice of a meeting of
Trustees may be waived before or after any meeting by signed written
waiver. Neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Trustees need be stated in the notice or
waiver of notice of such meeting, and no notice need be given of
2
<PAGE>
action proposed to be taken by written consent. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting
except where a Trustee attends a meeting for the express purpose of
objecting, at the commencement of such meeting, to the transaction of
any business on the ground that the meeting has not been lawfully called
or convened.
Section 2.4 Chairman; Records. The Trustees shall appoint
a Chairman of the Board from among their number. Such Chairman of the
Board shall act as chairman at all meetings of the Trustees; in his
absence the President shall act as chairman; and, in the absence of the
Chairman of the Board and the President, the Chief Operating Officer
shall act as Chairman. In the absence of all of them, the Trustees
present shall elect one of their number to act as temporary chairman.
The results of all actions taken at a meeting of the Trustees, or by
written consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 Audit Committee. The Trustees may, by the
affirmative vote of a majority of the entire Board, appoint from its
members an Audit Committee composed of two or more Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Trust, as the Board may from time to
time determine. The Audit Committee shall: (a) recommend independent
public accountants for selection by the Board, (b) review the scope of
audit, accounting and financial internal controls and the quality and
adequacy of the Trust's accounting staff with the independent public
accountants and such other persons as may be deemed appropriate, (c)
review with the accounting staff and the independent public accountants
the compliance of transactions of the Trust with its investment adviser,
administrator or any other service provider with the financial terms of
applicable contracts or agreements, (d) review reports of the
independent public accountants and comment to the Board when warranted,
(e) report to the Board at least once each year and at such other times
as the committee deems desirable, and (f) be directly available at all
times to independent public accountants and responsible officers of the
Trust for consultation on audit, accounting and related financial
matters.
Section 2.6 Nominating Committee of Trustees. The Trustees
may, by the affirmative vote of a majority of the entire Board, appoint
from its members a Trustee Nominating Committee composed of two or more
Trustees. The Trustee Nominating Committee shall recommend to the Board
a slate of persons to be nominated for election as Trustees by the
Holders at a meeting of the Holders and a person to be elected to fill
any vacancy occurring for any reason in the Board. Notwithstanding
anything in this Section to the contrary, if the Trust has in effect a
plan pursuant to Rule 12b-1 under the 1940 Act, the selection and
nomination of those Trustees who are not "interested persons" (as
defined in the 1940 Act) shall be committed to the discretion of such
disinterested Trustees.
Section 2.7 Executive Committee. The Trustees may appoint
from its members an Executive Committee composed of those Trustees as
the Board may from time to time determine, of which committee the
Chairman of the Board shall be a member. In the intervals between
meetings of the Board, the Executive Committee shall have the power of
the Board to: (a) determine the value of securities and assets owned by
the Trust, (b) elect or appoint officers of the Trust to serve until the
next meeting of the Board and (c) take such action as may be
3
<PAGE>
necessary to manage the portfolio security loan business of the Trust.
All action by the Executive Committee shall be recorded and reported to
the Board at its meeting next succeeding such action.
Section 2.8 Other Committees. The Board may appoint from
among its members other committees composed of two or more of its
Trustees which shall have such powers as may be delegated or authorized
by the resolution appointing them.
Section 2.9 Committee Procedures. The Trustees may at any
time change the members of any committee, fill vacancies or discharge
any committee. In the absence of any member of any committee, the member
or members thereof present at any meeting, whether or not they
constitute a quorum, may unanimously appoint to act in the place of such
absent member a member of the Board who, except in the case of the
Executive Committee, is not an "interested person" of the Trust as the
Board may from time to time determine. Each committee may fix its own
rules of procedure and may meet as and when provided by those rules.
Copies of the minutes of all meetings of committees other than the
Nominating Committee and the Executive Committee shall be distributed to
the Board unless the Board shall otherwise provide.
ARTICLE III
Officers
Section 3.1 Officers of the Trust; Compensation. The
officers of the Trust shall consist of the Chairman of the Board, a
President, a Secretary, a Treasurer and such other officers or assistant
officers, including Chief Operating Officer, Vice Presidents and
Assistant Secretaries, as may be elected by the Trustees. Any two or
more of the offices may be held by the same person, except that the same
person may not be both President and Secretary. The Trustees may
designate a Vice President as an Executive Vice President and may
designate the order in which the other Vice Presidents may act. The
Chairman shall be a Trustee, but no other officer of the Trust need be a
Trustee. The Board of Trustees may determine what, if any, compensation
shall be paid to officers of the Trust.
Section 3.2 Election and Tenure. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, President, Chief
Operating Officer, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next
annual meeting of the Trustees and until their successors have been duly
elected and qualified. The Trustees may fill any vacancy in office or
add any additional officers at any time.
Section 3.3 Removal of Officers. Any officer may be
removed at any time, with or without cause, by action of a majority of
the Trustees. This provision shall not prevent the making of a contract
of employment for a definite term with any officer and shall have no
effect upon any cause of action which any officer may have as a result
of removal in breach of a contract of employment. Any officer may resign
at any time by notice in writing signed by such
4
<PAGE>
officer and delivered or mailed to the President, Chief Operating
Officer or Secretary, and such resignation shall take effect
immediately, or at a later date according to the terms of such notice in
writing.
Section 3.4 Bonds and Surety. Any officer may be required
by the Trustees to be bonded for the faithful performance of his duties
in such amount and with such sureties as the Trustees may determine.
Section 3.5 President and Vice-Presidents. The President
shall be the chief executive officer of the Trust and, subject to the
control of the Trustees, shall have general supervision, direction and
control of the business of the Trust and of its employees and shall
exercise such general powers of management as are usually vested in the
office of president of a corporation. The President shall preside at all
meetings of the Holders and, in the absence of the Chairman of the
Board, the President shall preside at all meetings of the Trustees. The
President shall be, ex officio, a member of all standing committees.
Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all
loan documents, contracts, agreements, deeds, mortgages, and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power, on behalf of all of the Trustees,
to attend and to act and to vote, on behalf of the Trust at any meetings
of business organizations in which the Trust holds an interest, or to
confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The President shall have such further
authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Chief
Operating Officer, or, in the absence or disability of both of them, the
Vice Presidents in order of their rank or the Vice President designated
by the Trustees, shall perform all of the duties of President, and when
so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Subject to the direction of the
President, the Chief Operating Officer, the Treasurer and each Vice
President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and, in addition, shall have
such other duties and powers as shall be designated from time to time by
the Trustees, the Chairman, or the President.
Section 3.6 Chief Operating Officer. The Chief Operating
Officer shall have the authority and duties that generally pertain to
such office, including, but not limited to, those delegated by the
Chairman or the President.
Section 3.7 Secretary. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees
and any committees of Trustees, provided that, in the absence or
disability of the Secretary, the Holders or Trustees or committee may
appoint any other person to keep the minutes of a meeting and record
votes. The Secretary shall be custodian of the seal of the Trust, if
any, and he (and any other person so authorized by the Trustees) shall
affix the seal or, if permitted, a facsimile thereof, to any instrument
executed by the Trust which would be sealed by a Delaware corporation
executing the name or a similar instrument and shall attest the seal and
the signature or signatures of the officer or officers executing such
instrument on behalf of the Trust. The Secretary shall also perform any
other duties commonly incident to
5
<PAGE>
such office in a Delaware corporation, and shall have such other
authorities and duties as the Trustees shall from time to time
determine.
Section 3.8 Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers
and documents of the Trust, and shall have and exercise under the
supervision of the Trustees and of the Chairman, the President and the
Chief Operating Officer all powers and duties normally incident to his
office. He may endorse for deposit or collection all notes, checks and
other instruments payable to the Trust or to its order. He shall deposit
all funds of the Trust as may be ordered by the Trustees, the Chairman,
the President or the Chief Operating Officer. He shall keep accurate
account of the books of the Trust's transactions which shall be the
property of the Trust and which, together with all other property of the
Trust in his possession, shall be subject at all times to the inspection
and control of the Trustees. Unless the Trustees shall otherwise
determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the
Trust. He shall have such other duties and authorities as the Trustees
shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize any adviser or
administrator to maintain bank accounts and deposit and disburse funds
on behalf of the Trust.
Section 3.9 Other Officers and Duties. The Trustees may
elect such other officers and assistant officers as they shall from time
to time determine to be necessary or desirable in order to conduct the
business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authority as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE IV
Custodian
Section 4.1 Appointment and Duties. The Board of Trustees
shall at all times employ a custodian or custodians with authority as
its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in these By-Laws:
(a) to hold the securities owned by the Trust and
deliver the same upon written order;
(b) to receive and receipt for any moneys due to the Trust
and deposit the same in its own banking department or elsewhere as the
Trustees may direct;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
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(e) if authorized to do so by the Trustees, to compute
the net income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. The Trustees may also authorize the
custodian to employ one or more sub-custodians, from time to time, to
perform such of the acts and services of the custodian and upon such
terms and conditions as may be agreed upon between the custodian and
such sub-custodian and approved by the Trustees.
Section 4.2 Central Certificate System. Subject to such
rules, regulations and orders as the Securities and Exchange Commission
(the "Commission") may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system
for the central handling of securities established by a national
securities exchange or a national securities association registered with
the Commission under the Securities Exchange Act of 1934, any such other
person or entity with which the Trustees may authorize deposit in
accordance with the 1940 Act, pursuant to which system all securities of
any particular class or series of any issuer deposited within the system
are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities. All such deposits
shall be subject to withdrawal only upon the order of the Trust.
ARTICLE V
Miscellaneous
Section 5.1 Depositories. In accordance with Article IV of
these By-Laws, the portfolios of the Trust shall be deposited in such
depositories as the Trustees shall designate and shall be drawn out on
checks, drafts or other orders signed by such officer, officers, agent
or agents (including any adviser or administrator), as the Trustees may
from time to time authorize.
Section 5.2 Signatures. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents, as provided in these By-Laws or as the
Trustees may from time to time by resolution or authorization provide.
Section 5.3 Seal. The seal of the Trust, if any, may be
affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the
same force and effect as if it had been imprinted and attested manually
in the same manner and with the same effect as if done by a Delaware
corporation.
Section 5.4 Fiscal Year. The fiscal year of the Trust
shall end on December 31 of each year, subject, however, to change from
time to time by the Board.
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<PAGE>
ARTICLE VI
Interests
Section 6.1 Non-Transferability of Interests. Interests
shall not be transferable. Except as otherwise provided by law, the
Trust shall be entitled to recognize the exclusive right of a person in
whose name Interests stand on the record of Holders as the owners of
such Interests for all purposes, including, without limitation, the
rights to receive distributions, and to vote as such owner, and the
Trust shall not be bound to recognize any equitable or legal claim to or
interest in any such Interests on the part of any other person.
Section 6.2 Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws,
as they may deem expedient concerning the sale and purchase of Interests
of the Trust.
Section 6.3 Distribution Disbursing Agents and the Like.
The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is delegated
to any of them by the Trustees.
8
EXHIBIT 99.B5(a)
INVESTMENT ADVISORY AGREEMENT
NATIONS ANNUITY TRUST
THIS AGREEMENT is made as of this ___day of February, 1998, by and
between NATIONS ANNUITY TRUST, a Delaware business trust (the "Trust"),
and NATIONSBANC ADVISORS, INC., a North Carolina corporation (the
"Adviser"), on behalf of those portfolios of the Trust now or hereafter
identified on Schedule I hereto (each a "Portfolio" and collectively,
the "Portfolios").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission ( the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended ( the "1940
Act");
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser;
WHEREAS, the Trust and the Adviser desire to enter into an
agreement to provide for investment advisory services to the Trust upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Trust and the Adviser contemplate that certain duties
of the Adviser under this Agreement will be delegated to one or more
sub-investment adviser(s) (the "Sub-Adviser(s)") pursuant to separate
sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as
investment adviser to each Portfolio for the period and on the terms set
forth in this Agreement. The Adviser accepts such appointment and agrees
to furnish the services herein set forth for the compensation herein
provided. In the event that the Trust establishes one or more portfolios
other than the Portfolios with respect to which it desires to retain the
Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services
under this Agreement it shall notify the Trust in writing whereupon such
portfolio shall become a Portfolio hereunder and shall be subject to the
provisions of this Agreement except to the extent that said provisions
(including those relating to the compensation payable by the Fund to the
Adviser) are modified with respect to such Portfolio in writing by the
Trust and the Adviser at the time.
2. Delegation of Responsibilities. Subject to the approval of the
Trust's Board of Trustees and, if required, the shareholders of the
Portfolios, the Adviser may, pursuant to the Sub-Advisory Agreement(s),
delegate to the Sub-Adviser(s) those of its duties hereunder identified
in the Sub-Advisory Agreement(s), 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.
-1-
<PAGE>
The Adviser shall be solely responsible for compensating the
Sub-Adviser(s) for services rendered under the Sub-Advisory
Agreement(s).
3. 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 on November 24, 1997, and Declaration of
Trust and all amendments thereto (such Declaration of Trust, as
presently in effect and as it shall from time to time be amended, is
herein called the "Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto (such
By-Laws, as presently in effect and as it shall from time to time be
amended, is herein called the "By-Laws");
(c) Votes of the Trust's Board of Trustees authorizing the
appointment of the Adviser and approving this Agreement;
(d) The Trust's Registration Statement, as amended, on
Form N-1A under the Securities Act of 1933, as amended (the "1933 Act")
(File No. 333-40265) and under the 1940 Act (File No. 811-08481); and
(e) The most recent prospectus of the Trust relating to
each Portfolio (such prospectus) together with the related statement of
additional information, as presently in effect and all amendments and
supplements thereto, are herein called the "Prospectus").
The Trust will furnish the Adviser from time to time with copies
of all amendments of or supplements to the foregoing, if any.
4. Management. Subject to the supervision of the Trust's Board of
Trustees, the Adviser will provide a continuous investment program for
each Portfolio, including investment research and management with
respect to all securities, investments, cash and cash equivalents in
each Portfolio. The Adviser will determine from time to time what
securities and other investments will be purchased, retained or sold by
the Portfolios and will place the daily orders for the purchase or sale
of securities. The Adviser will provide the services rendered by it
under this Agreement in accordance with each Portfolio's investment
objective, policies and restrictions as stated in the Prospectus and
votes of the Trust's Board of Trustees. The Adviser further agrees that
it will:
(a) update each Portfolio's cash availability
throughout the day as required;
(b) maintain historical tax lots for each portfolio
security held by each Portfolio;
(c) transmit trades to the Trust's custodian for proper
settlement;
-2-
<PAGE>
(d) maintain all books and records with respect to each
Portfolio's securities and transactions;
(e) supply the Trust and its Board of Trustees with
reports and statistical data as requested; and
(f) prepare a quarterly broker security transaction
summary and monthly security transaction listing for each Portfolio.
5. Other Covenants. The Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations
of the Commission and will in addition conduct its activities under this
Agreement in accordance with other applicable law, including but not
limited to the 1940 Act and the Advisers Act;
(b) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(c) will not make loans to any person to purchase or
carry Portfolio shares;
(d) will place orders pursuant to its investment
determinations for the Portfolios either directly with the issuer or
with any broker or dealer. Subject to the other provisions of this
paragraph, in executing portfolio transactions and selecting brokers or
dealers, the Adviser will use its best efforts to seek on behalf of each
Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the 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/dealer to execute a particular transaction, the
Adviser may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934, as amended) provided to the Portfolio and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized, subject to the prior approval of
the Trust's Board of Trustees, to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a
portfolio transaction for any Portfolio which is in excess of the amount
of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser determines in good faith
that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer-viewed
in terms of that particular transaction or in terms of the overall
responsibilities of the Adviser to the particular Portfolio and to the
Trust. In addition, the Adviser is authorized to take into account the
sale of shares of the Trust in allocating purchase and sale orders for
portfolio securities to brokers or dealers (including brokers and
dealers that are affiliated with the Adviser or the Trust's principal
underwriter), provided that the Adviser believes that the quality of the
transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Adviser
-3-
<PAGE>
or the Trust's principal underwriter for the Portfolios or an affiliated
person of either acting as principal or broker, except as permitted by
the Commission or applicable law;
(e) will 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 Portfolio, its investment advisory personnel will
not inquire or take into consideration whether the issuer (or related
supporting institution) of securities proposed for purchase or sale for
the Portfolio'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 Portfolio; and
(f) will treat confidentially and as proprietary
information of the Trust all records and other information relative to
the Trust and prior, present or potential shareholders, and will not use
such records and information for any purpose other than performance of
its responsibilities and duties hereunder (except after prior
notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld and will be
deemed granted where the Adviser 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).
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 services under this
Agreement are 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 Portfolio or the size of the position
obtainable for or disposed of by a Portfolio.
7. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records
which it maintains for each Portfolio are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records
upon the Trust's 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.
8. Expenses. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities and other
investments (including brokerage commissions and other transaction
charges, if any) purchased or sold for the Portfolios. In addition, if
the aggregate expenses borne by any Portfolio in any fiscal year exceed
the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to
the public, the Adviser together with the Portfolio's administrator(s)
shall reimburse such Portfolio for such excess in proportion to the fees
otherwise payable to them for such year.
-4-
<PAGE>
The obligation of the Adviser to reimburse the Trust hereunder is
limited in any fiscal year to the amount of its fee hereunder for such
fiscal year, provided, however, that notwithstanding the foregoing, the
Adviser shall reimburse the Trust for the full amount of its share of
any such excess expenses regardless of the fees paid to it during such
fiscal year to the extent that the securities regulations of any state
having jurisdiction over the Trust so require. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a
monthly basis.
9. Compensation. For the services provided to each Portfolio 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
for that Portfolio determined in accordance with Schedule I attached
hereto. The fee attributable to each Portfolio shall be a separate
charge to such Portfolio and shall be the several (and not joint or
joint and several) obligation of each such Portfolio. 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 Portfolios for
such period or periods they deem advisable.
10. Limitation of Liability. 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 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 gross negligence on the part of the Adviser or
any of its officers, directors, employees or agents, in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement.
11. Duration and Termination. This Agreement shall become
effective with respect to a Portfolio when approved in accordance with
the requirements of the 1940 Act, and shall continue in effect for a
period of two years from the date first written above. This Agreement
shall thereafter continue from year to year, provided that the
continuation of the Agreement is specifically approved at least
annually:
(a) (i) by the Trust's Board of Trustees or (ii) by
the vote of "a majority of the outstanding voting
securities" of the Portfolio (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the
Trust's Trustees 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.
Notwithstanding the foregoing, this Agreement may be terminated as to
any Portfolio at any time, without the payment of any penalty, by the
Trust (by vote of the Trust's Board of Trustees or by vote of a majority
of the outstanding voting securities of the particular Portfolio), or by
the Adviser on sixty (60) days' written notice. The notice provided for
herein may be waived by the party entitled to receipt thereof. This
Agreement will immediately terminate in the event of its assignment. As
used in this Agreement, the terms "majority of the outstanding voting
-5-
<PAGE>
securities," "interested persons" and "assignment" shall have the same
meanings as such terms have in the 1940 Act.
12. Amendment of this Agreement. 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 enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement affecting a Portfolio shall be effective until approved
by vote of a majority of the outstanding voting securities of such
Portfolio. However, this shall not prevent the Adviser from reducing,
limiting or waiving its fee.
13. Release. The names "Nations Annuity Trust" and "Trustees of
Nations Annuity 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 and the Certificate of Trust
dated November 24, 1997, which is hereby referred to and a copy of which
is on file at the office of the Secretary of State of Delaware and the
principal office of the Trust. The obligations of "Nations Annuity
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,
shareholders, or representatives of the Trust personally, but bind only
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.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and shall be governed by Delaware law.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
NATIONS ANNUITY TRUST
on behalf of the Portfolios
By:
------------------------------
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By:
------------------------------
Mark H. Williamson
President and Director
-7-
<PAGE>
SCHEDULE I
The Trust shall pay the Adviser as full compensation for
services provided and expenses assumed hereunder an advisory fee for
each Portfolio, computed daily and payable monthly at the annual rates
listed below as a percentage of the average daily net assets of the
Portfolio:
<TABLE>
<CAPTION>
----------------------------------------------------------------------- -------------------
Rate of
Fund Compensation
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
<S> <C>
Nations Balanced Assets Portfolio 0.75%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Disciplined Equity Portfolio 0.75%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations International Growth Portfolio 0.90%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Managed Index Portfolio 0.50%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Managed SmallCap Index Portfolio 0.50%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Marsico Focused Equities Portfolio 0.85%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Marsico Growth & Income Portfolio 0.85%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Value Portfolio 0.75%
----------------------------------------------------------------------- -------------------
</TABLE>
Approved: December 9, 1997
-8-
EXHIBIT 99.B5(b)
SUB-ADVISORY AGREEMENT
NATIONS ANNUITY TRUST
THIS AGREEMENT is made as of this ____day of February, 1998, by
and among NATIONSBANC ADVISORS, INC., a North Carolina corporation (the
"Adviser"), TRADESTREET INVESTMENT ASSOCIATES, INC., a Maryland
corporation (the "Sub-Adviser"), and NATIONS ANNUITY TRUST, a Delaware
business trust (the "Trust"), on behalf of those portfolios of the Trust
now or hereafter identified on Schedule I hereto (each a "Portfolio" and
collectively, the "Portfolios").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser;
WHEREAS, the Sub-Adviser also is registered with the Commission
under the Advisers Act as an investment adviser;
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement of even date herewith (the "Investment Advisory
Agreement"), pursuant to which the Adviser shall act as investment
adviser with respect to the Portfolios; and
WHEREAS, pursuant to such Investment Advisory Agreement, the
Adviser, with the approval of the Trust, wishes to retain the
Sub-Adviser for purposes of rendering advisory services to the Adviser
and the Trust in connection with the Portfolios upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints, and
the Trust hereby approves, the Sub-Adviser to render investment research
and advisory services to the Adviser and the Trust with respect to the
Portfolios, under the supervision of the Adviser and subject to the
policies and control of the Trust's Board of Trustees, and the
Sub-Adviser hereby accepts such appointment, all subject to the terms
and conditions contained herein.
2. Investment Services. Subject to the supervision of the Adviser
and the Trust's Board of Trustees, the Sub-Adviser will provide a
continuous investment program for each Portfolio, including investment
research and management with respect to all securities, investments,
cash and cash equivalents in each Portfolio. The Sub-Adviser will
determine from time to time what securities and other investments will
be purchased, retained or sold by the Portfolios and will
-1-
<PAGE>
place the daily orders for the purchase or sale of securities. The
Sub-Adviser will provide the services rendered by it under this
Agreement in accordance with each Portfolio's investment objective,
policies and restrictions as stated in the Prospectus and votes of the
Trust's Board of Trustees. The Sub-Adviser shall provide such additional
services related to the continuous investment program, including
recordkeeping services, as may reasonably be requested from time to time
by the Trust or the Adviser.
3. Control by Board of Trustees. As is the case with respect to
the Adviser under the Investment Advisory Agreement, any investment
activities undertaken by the Sub-Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Sub-Adviser with respect
to the Trust, shall at all times be subject to any directives of the
Board of Trustees of the Trust.
4. Other Covenants. In carrying out its obligations under this
Agreement, the Sub-Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations
of the Commission and will in addition conduct its activities under this
Agreement in accordance with other applicable law, including but not
limited to the 1940 Act and the Advisers Act;
(b) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(c) will not make loans to any person to purchase or
carry Portfolio shares;
(d) will place orders pursuant to its investment
determinations for the Portfolios either directly with the issuer or
with any broker or dealer. Subject to the other provisions of this
paragraph, in executing portfolio transactions and selecting brokers or
dealers, the Sub-Adviser will use its best efforts to seek on behalf of
each Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker/dealer to execute a
particular transaction, the Sub-Adviser may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser exercises investment discretion. The
Sub-Adviser is authorized, subject to the prior approval of the Trust's
Board of Trustees, to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for any Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or
dealer-viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the particular Portfolio
and to the Trust. In
-2-
<PAGE>
addition, the Sub-Adviser is authorized to take into account the sale of
shares of the Trust in allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Sub-Adviser or the Trust's principal underwriter),
provided that the Sub-Adviser believes that the quality of the
transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Sub-Adviser or the Trust's
principal underwriter for the Portfolios or an affiliated person of
either acting as principal or broker, except as permitted by the
Commission or applicable law;
(e) will 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 Portfolio, its investment advisory personnel will
not inquire or take into consideration whether the issuer (or related
supporting institution) of securities proposed for purchase or sale for
the Portfolio'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 Portfolio; and
(f) will treat confidentially and as proprietary
information of the Trust all records and other information relative to
the Trust and prior, present or potential shareholders, and will not use
such records and information for any purpose other than performance of
its responsibilities and duties hereunder (except after prior
notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld and will be
deemed granted where the Sub-Adviser 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).
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 services under this Agreement are not impaired thereby. To the
extent that the purchase or sale of securities or other investments of
the same issuer may be deemed by the Sub-Adviser to be suitable for two
or more accounts managed by the Sub-Adviser, the available securities or
investments may be allocated in a manner believed by the Sub-Adviser to
be equitable to each account. It is recognized that in some cases this
procedure may adversely affect the price paid or received by a Portfolio
or the size of the position obtainable for or disposed of by a
Portfolio.
6. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records
which it maintains for each Portfolio are the property of the Trust and
further agrees to surrender promptly to the Adviser or the Trust 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.
-3-
<PAGE>
7. Expenses. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities, commodities and
other investments (including brokerage commissions and other transaction
charges, if any) purchased or sold for the Portfolios. In addition, the
Sub-Adviser acknowledges that the Adviser has agreed, pursuant to the
Investment Advisory Agreement, that, if the aggregate expenses borne by
any Portfolio in any fiscal year exceed the applicable expense
limitations imposed by the securities regulations of any state in which
its shares are registered or qualified for sale to the public, the
Adviser together with the Portfolio's administrator(s) shall reimburse
such Portfolio for such excess in proportion to the fees otherwise
payable to them for such year. If, for any fiscal year of a Portfolio,
the amount of the aggregate advisory fee which the Trust would otherwise
be obligated to pay is reduced pursuant to expense limitation provisions
of the Investment Advisory Agreement, the fee which the Sub-Adviser
would otherwise receive pursuant to this Agreement shall be reduced
proportionately.
8. Compensation. For the services provided to each Portfolio and
the expenses assumed pursuant to this Agreement, the Adviser will pay
the Sub-Adviser and the Sub-Adviser will accept as full compensation
therefor a fee for that Portfolio determined in accordance with Schedule
I attached hereto. 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 Portfolios for such period or periods they deem
advisable. It is understood that the Adviser shall be responsible for
the Sub-Adviser's fee for its services hereunder, and the Sub-Adviser
agrees that it shall have no claim against the Trust or the Portfolio
with respect to compensation under this Agreement.
9. 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 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 gross negligence on the part of
the Sub-Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement shall become
effective with respect to a Portfolio when approved by the Trustees of
the Trust, and shall continue in effect for a period of two years from
the date first written above. This Agreement shall thereafter continue
from year to year, provided that the continuation of the Agreement is
specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by
the vote of "a majority of the outstanding voting
securities" of a Portfolio (as defined in Section 2(a)(42)
of the 1940 Act), and
(b) by the affirmative vote of a majority of the
Trust's Trustees 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.
-4-
<PAGE>
Notwithstanding the foregoing, this Agreement may be terminated as to
any Portfolio at any time, without the payment of any penalty, by the
Trust (by vote of the Trust's Board of Trustees or by vote of a majority
of the outstanding voting securities of the particular Portfolio), or by
the Sub-Adviser or Adviser on sixty (60) days' written notice to the
other parties to this Agreement. The notice provided for herein may be
waived by the party entitled to receipt thereof. This Agreement will
immediately terminate in the event of its assignment. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as
such terms have in the 1940 Act.
11. Amendment of this Agreement. 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 enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement affecting a Portfolio shall be effective until approved
by vote of a majority of the outstanding voting securities of such
Portfolio. However, this shall not prevent the Sub-Adviser from
reducing, limiting or waiving its fee.
12. Release. The names "Nations Annuity Trust" and "Trustees of
Nations Annuity 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 and the Certificate of Trust,
dated November 24, 1997, which is hereby referred to and a copy of which
is on file at the office of the Secretary of State of Delaware and the
principal office of the Trust. The obligations of "Nations Annuity
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,
shareholders, or representatives of the Trust personally, but bind only
the Trust property, and all persons dealing with any class of shares of
the Trust must look solely to the property belonging to such class for
the enforcement of any claims against the Trust.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and shall be governed by Delaware law.
14. Counterparts. This Agreement may be executed in any manner of
counterparts, each of which shall be deemed an original.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
NATIONS ANNUITY TRUST
on behalf of the Portfolios
By: _________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: _________________________________
Mark H. Williamson
President and Director
TRADESTREET INVESTMENT ASSOCIATES, INC.
By: _________________________________
Andrew M. Silton
President and Director
-6-
<PAGE>
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:
<TABLE>
<CAPTION>
----------------------------------------------------------------------- -------------------
Rate of
Fund Compensation
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
<S> <C>
Nations Balanced Assets Portfolio 0.25%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Disciplined Equity Portfolio 0.25%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Managed Index Portfolio 0.10%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Managed SmallCap Index Portfolio 0.10%
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
Nations Value Portfolio 0.25%
----------------------------------------------------------------------- -------------------
</TABLE>
Approved: December 9, 1997
-7-
EXHIBIT 99.B5(c)
SUB-ADVISORY AGREEMENT
NATIONS ANNUITY TRUST
THIS AGREEMENT is made this ___ day of February, 1998, by
and among NATIONSBANC ADVISORS, INC., a North Carolina corporation (the
"Adviser"), GARTMORE GLOBAL PARTNERS, a general partnership organized
under the laws of the State of Delaware (the "Sub-Adviser"), and NATION
ANNUITY TRUST, a Delaware business trust, (the "Trust") on behalf of the
portfolio or portfolios of the Trust as now or hereafter may be
identified on Schedule I hereto (each a "Portfolio" and collectively,
the "Portfolios").
RECITALS
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
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act") as an investment adviser;
WHEREAS, the Sub-Adviser is also registered with the
Commission under the Advisers Act as an investment adviser and is
regulated by the Investment Management Regulatory Organization Limited
("IMRO") of the United Kingdom in the conduct of its investment business
and is a member of IMRO;
WHEREAS, the Adviser and the Trust have entered into an
Investment Advisory Agreement of even date herewith (the "Investment
Advisory Agreement"), pursuant to which the Adviser shall act as
investment adviser with respect to the Portfolios; and
WHEREAS, pursuant to such Investment Advisory Agreement,
the Adviser, with the approval of the Trust, wishes to retain the
Sub-Adviser for purposes of rendering advisory services to the Adviser
and the Trust in connection with the Portfolios upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Adviser. The Adviser hereby
appoints, and the Trust hereby approves, the Sub-Adviser to render
investment research and advisory services to the Adviser and the Trust
with respect to the Portfolios, under the supervision of the Adviser and
subject to the policies and control of the Trust's Board of Trustees,
and the Sub-Adviser hereby accepts such appointment, all subject to the
terms and conditions contained herein.
2. Investment Services. The specific duties of the
Adviser delegated to the Sub-Adviser shall be the following:
<PAGE>
(a) obtaining and evaluating pertinent information
about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolios specifically,
and whether concerning the individual issuers whose securities
are included in the Portfolios or the activities in which such
issuers engage, or with respect to securities which the Adviser
or Sub-Adviser considers desirable for inclusion in the
Portfolios;
(b) investing and reinvesting, on an ongoing basis,
assets held in the Portfolios in strict accordance with the
investment policies of the Portfolios as set forth in the
registration statement of the Trust with respect to the
Portfolios, as the same may be amended from time to time;
(c) in accordance with policies and procedures
established by the Board of Trustees of the Trust and the
Adviser, selecting brokers and dealers to execute portfolio
transactions for the Portfolios and selecting the markets on or
in which the transactions will be executed;
(d) voting, either in person or by general or
limited proxy, or refraining from voting, any securities held in
the Portfolios for any purposes; exercising or selling any
subscription or conversion rights; consenting to and joining in
or opposing any voting trusts, reorganizations, consolidations,
mergers, foreclosures and liquidations and in connection
therewith, depositing securities, and accepting and holding
other property received therefor, all as may be considered
appropriate by the Sub-Adviser; and
(e) performing other acts necessary or appropriate
in connection with the proper management of the Portfolios,
consistent with its obligations hereunder, and as may be
directed by the Adviser and/or the Trust's Board of Trustees.
In carrying out its obligations under clauses (b)
to (e), inclusive, of this Paragraph 2, the Sub-Adviser shall act only
as agent of the Trust and/or the Portfolio and shall not act as
principal. The Sub-Adviser shall not be responsible for the
administration of the Portfolio, for the execution and settlement of
transactions in securities or derivative instruments nor for the custody
of any such securities or instruments or documents of title and the
Sub-Adviser shall not hold any money or other assets of the Portfolio or
the Trust.
3. Control by Board of Trustees. As is the case with
respect to the Adviser under the Investment Advisory Agreement, any
investment activities undertaken by the Sub-Adviser pursuant to this
Agreement, as well as any other activities undertaken by the Sub-Adviser
with respect to the Portfolios, shall at all times be subject to any
directives of the Board of Trustees of the Trust. Without limiting the
right of the Board of Trustees of the Trust to issue directives, the
Board of Trustees shall take into consideration any views or opinions
that may be expressed by the Adviser of Sub-Adviser in formulating
policies, procedures and directives. The Sub-Adviser shall not be
obligated to conform its activities to any directive of the Board of
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Trustees of the Trust to the extent that compliance with such directive
would be in contravention of any law, rule or regulation applicable to
the Sub-Adviser.
4. Compliance with Applicable Requirements. In
carrying out its obligations under this Agreement, the Sub-Adviser shall
at all times conform to:
(a) all applicable provisions of the 1940 Act
and any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of
the Trust applicable to the Portfolios, as the same may be
amended from time to time, under the Securities Act of 1933, as
amended (the "1933 Act") and the 1940 Act;
(c) the Conduct of Business Rules of IMRO ("IMRO
Rules") to the extent that the IMRO Rules are not inconsistent
with any applicable requirements under the 1940 Act, the
Advisers Act or other United States federal or state law; and
(d) such policies and procedures that may be
established by the Board of Trustees of the Trust and
communicated to the Sub-Adviser from time to time.
In addition, any code of ethics adopted by the Sub-Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies,
prohibitions and procedures which substantially conform to the
recommendations regarding personal investing approved by the Board of
Governors of the Investment Company Institute on June 30, 1994, as such
recommendations may amended from time to time.
5. Compensation. The Adviser shall pay the Sub-Adviser, as
compensation for services rendered hereunder, fees, payable monthly, at
the annual rates indicated on Schedule I hereto, as such Schedule may be
supplemented and amended from time to time. It is understood that the
Adviser shall be responsible for the Sub-Adviser's fee for its services
hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Trust or the Portfolio with respect to compensation under
this Agreement. The Sub-Adviser's fees shall be pro-rated for portions
of months in which sub-advisory services are provided.
The average daily net asset value of the Portfolios shall
be determined in the manner set forth in the Declaration of Trust and
registration statement of the Trust, as amended from time to time.
6. Expenses of the Funds. All of the ordinary business
expenses incurred by the Sub-Adviser in the operations of the Portfolios
and the offering of their shares shall be borne by the Portfolios unless
specifically provided otherwise in this Agreement. These expenses borne
by the Portfolios include but are not limited to brokerage commissions,
taxes, legal, auditing, or governmental fees, the cost of preparing
share certificates, custodian, transfer agent and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of
shares, directors and shareholder meetings, the cost of preparing and
distributing reports and notices to
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shareholders, the fees and other expenses incurred by the Portfolios in
connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional
information distributed to the Portfolios' shareholders.
7. Expense Limitation. If, for any fiscal year a
Portfolio, the amount of the aggregate advisory fee which the Trust
would otherwise be obligated to pay with respect to the Portfolio is
reduced pursuant to expense limitation provisions of the Investment
Advisory Agreement, the fee which the Sub-Adviser would otherwise
receive pursuant to this Agreement shall be reduced proportionately.
8. Non-Exclusivity. The services of the Sub-Adviser to the
Adviser and the Trust with respect to the Portfolio are not to be deemed
to be exclusive, and the Sub-Adviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities. It is
understood and agreed that the officers and directors of the Sub-Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including
other investment advisory companies.
9. Records. The Sub-Adviser shall provide to the Adviser,
with respect to the orders the Sub-Adviser places for the purchases and
sales of portfolio securities of the Portfolios, the documents and
records required pursuant to Rule 31a-1 under the 1940 Act as well as
such records as the Portfolios' administrator reasonably requests to be
maintained, including, but not limited to, trade tickets and
confirmations for portfolio trades. All such records shall be maintained
in a form acceptable to the Portfolios and in compliance with the
provisions of Rule 31a-1. All such records will be the property of the
Portfolios and will be available for inspection and use by the
Portfolios. The Sub-Adviser will promptly notify the Adviser and the
Portfolio's administrator if it experiences any difficulty in providing
the records in an accurate and complete manner.
10. Term and Approval. This Agreement shall become
effective when approved, and shall continue in effect for a period of
two years from the date first written above. This Agreement shall
thereafter continue from year to year, provided that the continuation of
the Agreement is specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by
the vote of "a majority of the outstanding voting securities" of
the Portfolio (as defined in Section 2(a)(42) of the 1940 Act);
and
(b) by the affirmative vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of a party to
this Agreement (other than as Trustees of the Trust), by votes
cast in person at a meeting specifically called for such
purpose.
11. Termination. This Agreement may be terminated at any
time with respect to a Portfolio, without the payment of any penalty, by
vote of the Trust's Board of Trustees or by vote
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of a majority of the Portfolio's outstanding voting securities, or by
the Adviser, or by the Sub-Adviser on 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, the term "assignment" for
purposes of this paragraph having the meaning defined in Section 2(a)(4)
of the 1940 Act. This Agreement shall automatically terminate 120 days
after its effectiveness if the Portfolio's shareholders have not
ratified and approved it within such period. The Agreement shall
automatically terminate upon the effectiveness of a Sub-Advisory
Agreement between the Trust on behalf of the Portfolio and Gartmore
Global Partners.
12. Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Sub-Adviser or any of
its officers, directors, employees or agents, the Sub-Adviser shall not
be subject to liability to the Adviser or to the Trust for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. For purposes of this paragraph and
paragraph 13, brokers or dealers selected to execute portfolio
transactions for the Portfolio in accordance with Paragraph 2(c) hereof
shall not be considered agents of the Sub-Adviser.
13. Indemnification. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duties
hereunder on the part of the Sub-Adviser, or any officers, directors,
employees or agents thereof, the Trust hereby agrees to indemnify and
hold harmless the Sub-Adviser against all claims, actions, suits or
proceedings at law or in equity whether brought by a private party or a
governmental department, commission, board, bureau, agency or
instrumentality of any kind, (a) arising from the advertising,
solicitation, sale, purchase or pledge of securities, whether of the
Portfolios or other securities, undertaken by the Portfolios or the
Trust's officers, directors, employees, agents or affiliates, or (b)
resulting from any violations of the securities laws, rules,
regulations, statutes and codes, whether federal or of any state, by the
Portfolios, or the Trust's officers, directors, employees or affiliates.
14. Notices. Any notices under this Agreement shall be in
writing and shall be duly given if delivered, mailed (postage prepaid,
effective upon receipt) or telegraphed, telexed or transmitted by
similar telecommunications device (effective upon completion of
transmission, with a confirming copy delivered or mailed postage
prepaid) to such address or number as may be designated for the receipt
of such notice, with a copy to the Trust. Until further notice, it is
agreed that the address and telefax number of the Trust shall be 111
Center Street, Little Rock, Arkansas 72201, Fax No. (501) 377-2331; that
of the Sub-Adviser shall be Gartmore House, 16-18 Monument Street,
London EC3R 8AJ, England, Fax No. 71-782-2075; and that of the Adviser
shall be c/o Mutual Fund Group, 33rd Floor, One NationsBank Plaza,
Charlotte, North Carolina 28255, Fax No. (704) 388-2187.
15. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940
Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States courts
or in the absence of
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<PAGE>
any controlling decision of any such court, by rules, regulations or
orders of the Commission issued pursuant to the 1940 Act. In addition,
where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is revised by rule, regulation or order of
the Commission, such provision shall be deemed to incorporate the effect
of such rule, regulation or order.
16. IMRO Rules. Addendum A attached hereto sets forth
certain requirements under the IMRO Rules which are applicable to the
Sub-Adviser, that are expressly incorporated herein and made a part
hereof, but only to the extent that such requirements are not
inconsistent with any applicable requirements under the 1940 Act, the
Advisers Act or other United States federal or state law.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in triplicate by their respective officers on
the day and year first written above.
NATIONS ANNUITY TRUST
on behalf of the Portfolios
By:
---------------------------------
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By:
--------------------------------
Mark H. Williamson
President and Director
GARTMORE GLOBAL PARTNERS
By:
--------------------------------
Charles G. Smith IV
President
6
<PAGE>
SCHEDULE I
Fund Rate of Compensation
1. Nations International Growth Portfolio 0.70% of average daily net assets
Approved: December 9, 1997
<PAGE>
ADDENDUM A
1. To the extent that the Sub-Adviser receives any commissions or other
forms of remuneration, directly or indirectly, in connection with
Portfolio transactions, no portion of the Sub-Adviser's accrued
investment advisory fee shall be abated thereby.
2. Subject to the supervision of the Adviser and the policies and
ultimate control of the Trust's Board of Trustees, the Sub-Adviser
shall advise the Trust and the Adviser on the management of the
Portfolios' investments in accordance with the terms of this
Agreement and in accordance with the investment parameters
(including, inter alia, percentage limitations, quality standards,
investment selection criteria and types of permissible investments
and investment techniques, such as borrowing, options and futures
transactions, portfolio securities lending, etc.) established
pursuant to the investment objectives, policies and restrictions
specifically embodied in the Trust's Registration Statement on Form
N-1A, and any amendments thereto, under the 1933 Act and the 1940 Act
(the "Fund's Registration Statement").
3. The Sub-Adviser shall not have or maintain custody of any securities,
cash or other assets of the Portfolios. Custody of the Portfolios'
assets will be maintained by the custodian bank pursuant to an
agreement approved by the Portfolios' Board of Trustees. It is
expected that such custodian, or any successor thereto, will not be
an "Associate" of the Sub-Adviser as that term is defined under IMRO
Rules.
4. In the event the Portfolios or the Adviser has a significant
complaint regarding the services provided by the Sub-Adviser under
the Sub-Advisory Agreement by and among the Trust, the Adviser and
the Sub-Adviser, a Portfolio officer should communicate such
complaint to the Sub-Adviser, whereupon such complaint will be
recorded on a standard form prepared by the Sub-Adviser for such
purposes. The Sub-Adviser's complaints procedure requires that if a
complaint has not been cleared within twenty-one (21) days, the
Sub-Adviser must so advise IMRO and the Portfolios also must be
advised that it has the right to issue its complaint directly with a
referee appointed by IMRO.
5. The Sub-Adviser will provide to the Portfolios' Board of Trustees
written financial reports and analyses on the Portfolios' securities
transactions and the operations of comparable investment companies on
a quarterly basis or more frequently as requested by the Board of
Trustees. Such reports and analyses shall include information as at
the last day of an applicable reporting period.
6. The Portfolios may from time to time request or instruct the
Sub-Adviser, directly or through the Adviser, to act or not to act
regarding certain Portfolio-related investment and/or operational
matters. Such request or instructions will be communicated orally or
in writing to the Sub-Adviser, directly or through the Adviser and
will be acknowledged in the same manner in which they are
communicated. To the extent that a particular request or instruction
is, or may be, refused (i.e., because it (a) is in contravention of
(i) a law or regulation, (ii) an investment policy of the Portfolio,
or (iii) a provision of this Agreement or (b) is not operationally
feasible), such refusal shall be communicated by the Sub-Adviser,
including through the Adviser, and the
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Portfolio and the Sub-Adviser, upon advice of counsel, shall discuss
alternatives and determine an appropriate course of action which
will be reported to the full Board at the next meeting of the
Portfolio's Board of Trustees for its approval.
7. Notwithstanding that all required disclosure concerning the risks
associated with the Portfolios' permissible investments and
investment techniques is included in the Portfolios' Registration
Statement, which Statement is intended for review by the investors
in the Portfolios and to be retained by them for future reference,
with respect to the Portfolios' specified use of options and futures
transactions, the following shall be specifically noted herein:
"Options and futures markets can be highly volatile and
transactions of this type carry a high risk of loss. Moreover, a
relatively small adverse market movement with respect to these
types of transactions may result not only in loss of the
original investment but also in unquantifiable further loss
exceeding any margin deposited."
Further, in managing the Portfolios' assets, the Sub-Adviser shall
consider the risks associated with the Portfolio's permissible
investments and investment techniques.
8. The Sub-Adviser or its representatives may from time to time
recommend to the Portfolios or effect on behalf of the Portfolios with
respect to Portfolio transactions in securities the subject of a recent
new issue, the price of which transactions may have been influenced by
bids made or transactions effected for the purpose of stabilizing the
price of those securities. Such transactions would at all times be
effected in accordance with the provisions of IMRO Rule 14 and, in
particular, with the conditions of the IMRO Rule 14.02, including the
requirement that the Sub-Adviser, with respect to any specific
transaction, communicate to the Portfolio orally or in writing a
statement in a form substantially similar to that which is set forth in
IMRO Rule 14.02(c). In addition, with respect to these transactions, it
is understood when executing this Agreement and thereafter when
approving the continuance of this Agreement in accordance with its
terms, that management of the Portfolio has carefully read the
following paragraphs in order to enable Fund management to judge
whether it wishes a Portfolio's assets to be invested at all in such
securities or, if so, whether it wishes to authorize the Sub-Adviser
generally to effect transactions in such securities on behalf of the
Fund without further reference to Portfolio management or whether
Portfolio management wishes to be consulted before any particular
transaction is effected on behalf of the Portfolio.
Stabilization is a process whereby the market price of a security is
pegged or fixed during the period in which a new issue of securities is
sold to the public. Stabilization may take place in the new issue or in
other securities related to the new issue in such a way that the price
of the other securities may affect the price of the new issue or vice
versa.
The reason stabilization is permitted is that when a new issue is
brought to market the sudden glut will sometimes force the price lower
for a period of time before buyers are found for the securities on
offer.
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As long as it obeys a strict set of rules, the "stabilizing manager,"
normally the issuing house chiefly responsible for bringing a new issue
to market, is entitled to buy securities in the market that it has
previously sold to investors or allotted to institutions who were
included in the new issue but who have decided not to continue
participating. The effect of this may be to keep the price at a higher
level than would otherwise be the case during the period of
stabilizing.
The rules referred to above in the immediately preceding paragraph
limit the period in which the stabilizing manager may stabilize, fix
the price at which it may stabilize (in the case of shares and warrants
but not bonds), and require the stabilizing manager to disclose that it
may be (but not that it is) stabilizing. The fact that a new issue or a
related security is being stabilized does not in itself mean that
investors are not interested in the issue, but neither should the
existence of transactions in an issue where the stabilizing may take
place be relied upon as an indication that investors are interested in
the new issue or interested in purchasing at the price at which
transactions are taking place.
9. A report containing the Portfolios' financial statements (including
the contents and valuation of the Funds) shall be submitted to
shareholders and to the Commission at least semi-annually. Such reports
shall include information as at the last day of any semi-annual period
for which such reports relate. To the extent that any performance
information is included in such report, it shall conform to the
standards set forth in the Portfolios' Registration Statement.
10. Except as permitted by or pursuant to Section 17 of the 1940 Act and
the Rules promulgated thereunder, the Sub-Adviser, or an "affiliate"
thereof (as that term is defined in the 1940 Act), may not effect
transactions: (i) with or for the Portfolios in which the Sub-Adviser
or such affiliate has directly or indirectly a material interest or a
relationship of any kind with another party which may involve a
conflict with the Sub-Adviser's responsibilities to the Portfolios as a
sub-investment sub-adviser; or (ii) with or through the agency or
another person with whom the Sub-Adviser or such affiliate maintains an
arrangement as described in Rule 6.01 of Chapter IV of the IMRO Rules.
11. Upon termination of the Sub-Advisory Agreement by and among the
Trust, the Adviser and the Sub-Adviser, unless otherwise directed by
the Portfolio's Board of Trustees, all securities positions and other
portfolio transactions then in progress shall be transferred to the
successor investment adviser selected by the Board of Trustees.
12. The Sub-Adviser shall be entitled at its discretion to disclose any
information known to it relating to the Portfolio's business or affairs
to the Securities and Investment Board or to IMRO on the terms that the
information so disclosed shall not without its consent be further
disclosed otherwise than is permitted in respect of Restricted
Information under the provisions of Part VIII of the Financial Services
Act of 1986.
3
EXHIBIT 99.B5(d)
SUB-ADVISORY AGREEMENT
NATIONS ANNUITY TRUST
THIS AGREEMENT is made as of this ____day of February, 1998, by
and among NATIONSBANC ADVISORS, INC., a North Carolina corporation (the
"Adviser"), MARSICO CAPITAL MANAGEMENT, INC., a Delaware corporation
(the "Sub-Adviser"), and NATIONS ANNUITY TRUST, a Delaware business
trust (the "Trust"), on behalf of those portfolios of the Trust now or
hereafter identified on Schedule I hereto (each a "Portfolio" and
collectively, the "Portfolios").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser;
WHEREAS, the Sub-Adviser also is registered with the Commission
under the Advisers Act as an investment adviser;
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement of even date herewith (the "Investment Advisory
Agreement"), pursuant to which the Adviser shall act as investment
adviser with respect to the Portfolios; and
WHEREAS, pursuant to such Investment Advisory Agreement, the
Adviser, with the approval of the Trust, wishes to retain the
Sub-Adviser for purposes of rendering advisory services to the Adviser
and the Trust in connection with the Portfolios upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints, and
the Trust hereby approves, the Sub-Adviser to render investment research
and advisory services to the Adviser and the Trust with respect to the
Portfolios, under the supervision of the Adviser and subject to the
policies and control of the Trust's Board of Trustees, and the
Sub-Adviser hereby accepts such appointment, all subject to the terms
and conditions contained herein.
2. Investment Services. Subject to the supervision of the Adviser
and the Trust's Board of Trustees, the Sub-Adviser will provide a
continuous investment program for each Portfolio, including investment
research and management with respect to all securities, investments,
cash and cash equivalents in each Portfolio. The Sub-Adviser will
determine from time to time what securities and other investments will
be purchased, retained or sold by the Portfolios and will
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<PAGE>
place the daily orders for the purchase or sale of securities. The
Sub-Adviser will provide the services rendered by it under this
Agreement in accordance with each Portfolio's investment objective,
policies and restrictions as stated in the Prospectus and votes of the
Trust's Board of Trustees. The Sub-Adviser shall provide such additional
services related to the continuous investment program, including
recordkeeping services, as may reasonably be requested from time to time
by the Trust or the Adviser.
3. Control by Board of Trustees. As is the case with respect to
the Adviser under the Investment Advisory Agreement, any investment
activities undertaken by the Sub-Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Sub-Adviser with respect
to the Trust, shall at all times be subject to any directives of the
Board of Trustees of the Trust.
4. Other Covenants. In carrying out its obligations under this
Agreement, the Sub-Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations
of the Commission and will in addition conduct its activities under this
Agreement in accordance with other applicable law, including but not
limited to the 1940 Act and the Advisers Act;
(b) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(c) will not make loans to any person to purchase or
carry Portfolio shares;
(d) will place orders pursuant to its investment
determinations for the Portfolios either directly with the issuer or
with any broker or dealer. Subject to the other provisions of this
paragraph, in executing portfolio transactions and selecting brokers or
dealers, the Sub-Adviser will use its best efforts to seek on behalf of
each Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker/dealer to execute a
particular transaction, the Sub-Adviser may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser exercises investment discretion. The
Sub-Adviser is authorized, subject to the prior approval of the Trust's
Board of Trustees, to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for any Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or
dealer-viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the particular Portfolio
and to the Trust. In
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addition, the Sub-Adviser is authorized to take into account the sale of
shares of the Trust in allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Sub-Adviser or the Trust's principal underwriter),
provided that the Sub-Adviser believes that the quality of the
transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Sub-Adviser or the Trust's
principal underwriter for the Portfolios or an affiliated person of
either acting as principal or broker, except as permitted by the
Commission or applicable law;
(e) will 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 Portfolio, its investment advisory personnel will
not inquire or take into consideration whether the issuer (or related
supporting institution) of securities proposed for purchase or sale for
the Portfolio'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 Portfolio; and
(f) will treat confidentially and as proprietary
information of the Trust all records and other information relative to
the Trust and prior, present or potential shareholders, and will not use
such records and information for any purpose other than performance of
its responsibilities and duties hereunder (except after prior
notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld and will be
deemed granted where the Sub-Adviser 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).
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 services under this Agreement are not impaired thereby. To the
extent that the purchase or sale of securities or other investments of
the same issuer may be deemed by the Sub-Adviser to be suitable for two
or more accounts managed by the Sub-Adviser, the available securities or
investments may be allocated in a manner believed by the Sub-Adviser to
be equitable to each account. It is recognized that in some cases this
procedure may adversely affect the price paid or received by a Portfolio
or the size of the position obtainable for or disposed of by a
Portfolio.
6. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records
which it maintains for each Portfolio are the property of the Trust and
further agrees to surrender promptly to the Adviser or the Trust 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.
-3-
<PAGE>
7. Expenses. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities, commodities and
other investments (including brokerage commissions and other transaction
charges, if any) purchased or sold for the Portfolios. In addition, the
Sub-Adviser acknowledges that the Adviser has agreed, pursuant to the
Investment Advisory Agreement, that, if the aggregate expenses borne by
any Portfolio in any fiscal year exceed the applicable expense
limitations imposed by the securities regulations of any state in which
its shares are registered or qualified for sale to the public, the
Adviser together with the Portfolio's administrator(s) shall reimburse
such Portfolio for such excess in proportion to the fees otherwise
payable to them for such year.
8. Compensation. For the services provided to each Portfolio and
the expenses assumed pursuant to this Agreement, the Adviser will pay
the Sub-Adviser and the Sub-Adviser will accept as full compensation
therefor a fee for that Portfolio determined in accordance with Schedule
I attached hereto. 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 Portfolios for such period or periods they deem
advisable. It is understood that the Adviser shall be responsible for
the Sub-Adviser's fee for its services hereunder, and the Sub-Adviser
agrees that it shall have no claim against the Trust or the Portfolio
with respect to compensation under this Agreement.
9. 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 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 gross negligence on the part of
the Sub-Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement shall become
effective with respect to a Portfolio when approved by the Trustees of
the Trust, and shall continue in effect for a period of two years from
the date first written above. This Agreement shall thereafter continue
from year to year, provided that the continuation of the Agreement is
specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by
the vote of "a majority of the outstanding voting
securities" of a Portfolio (as defined in Section 2(a)(42)
of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Trust's Trustees 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.
Notwithstanding the foregoing, this Agreement may be terminated as to
any Portfolio at any time, without the payment of any penalty, by the
Trust (by vote of the Trust's Board of Trustees or by vote of a majority
of the outstanding voting securities of the particular Portfolio), or by
the Sub-
-4-
<PAGE>
Adviser or Adviser on sixty (60) days' written notice to the other
parties to this Agreement. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement will
immediately terminate in the event of its assignment. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as
such terms have in the 1940 Act.
11. Amendment of this Agreement. 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 enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement affecting a Portfolio shall be effective until approved
by vote of a majority of the outstanding voting securities of such
Portfolio. However, this shall not prevent the Sub-Adviser from
reducing, limiting or waiving its fee.
12. Release. The names "Nations Annuity Trust" and "Trustees of
Nations Annuity 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 and the Certificate of Trust,
dated November 24, 1997, which is hereby referred to and a copy of which
is on file at the office of the Secretary of State of Delaware and the
principal office of the Trust. The obligations of "Nations Annuity
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,
shareholders, or representatives of the Trust personally, but bind only
the Trust property, and all persons dealing with any class of shares of
the Trust must look solely to the property belonging to such class for
the enforcement of any claims against the Trust.
13. Use of the Name "Marsico". Sub-Adviser hereby consents to and
grants a non-exclusive license for the use by the Trust to the phrase
"Marsico Capital" and the identifying word "Marsico" in the name of the
Funds and any logo or symbol authorized by the Sub-Adviser. Such consent
is conditioned upon the Trust's employment of Sub-Adviser or its
affiliates as investment sub-adviser to the Funds. Sub-Adviser may from
time to time use the phrase "Marsico Capital" or the identifying word
"Marsico" or logos or symbols used by Sub-Adviser in other connections
and for other purposes, including without limitation in the names of
other investment companies, corporations or businesses that it may
manage, advise, sponsor or own or in which it may have a financial
interest. Sub-Adviser may require the Trust to cease using the phrase
"Marsico Capital" or the identifying word "Marsico" in the name of the
Funds or any logo or symbol authorized by Sub-Adviser if the Trust
ceases to employ Sub-Adviser or an affiliate thereof as investment
sub-adviser.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and shall be governed by Delaware law.
-5-
<PAGE>
15. Counterparts. This Agreement may be executed in any manner of
counterparts, each of which shall be deemed an original.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
NATIONS ANNUITY TRUST
on behalf of the Portfolios
By: _________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: _________________________________
Mark H. Williamson
President and Director
MARSICO CAPITAL MANAGEMENT, INC.
By: _________________________________
Thomas Marsico
President
-7-
<PAGE>
SCHEDULE I
The Adviser shall pay the Sub-Adviser as full compensation for
services provided and expenses assumed hereunder a sub-advisory fee for
each Portfolio, computed daily and payable monthly at the annual rates
listed below as a percentage of the average daily net assets of the
Portfolio:
<TABLE>
<CAPTION>
----------------------------------------------------------------------- -------------------
Rate of
Fund Compensation
----------------------------------------------------------------------- -------------------
----------------------------------------------------------------------- -------------------
<S> <C>
Nations Marsico Focused Equities Portfolio 0.45%
----------------------------------------------------------------------- -------------------
Nations Marsico Growth & Income Portfolio 0.45%
----------------------------------------------------------------------- -------------------
</TABLE>
Approved: December 9, 1997
-8-
EXHIBIT 99.B6(a)
DISTRIBUTION AGREEMENT
NATIONS ANNUITY 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 Annuity 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 shares of common stock in all classes of
shares ("Shares") of the investment portfolios of the Trust listed on
Schedule I (individually, a "Portfolio" and collectively the
"Portfolios"). 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 "Portfolio" 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 Portfolios. The Trust further understands that existing and
future investors in the Portfolios 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 Portfolios. In
addition, the Distributor will provide one or more
1
<PAGE>
persons, during normal business hours, to respond to telephone questions
with respect to the Portfolios.
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 ("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
Portfolios 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 Portfolio, and, (b) from time to time
such additional information regarding the Portfolios' 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 Portfolio pursuant
to Rule 12b-1 under the 1940 Act. No provision of this Agreement shall
be deemed to prohibit any payments by a Portfolio to the Distributor or
by a Portfolio or the Distributor to investment dealers, banks or other
financial institutions through whom shares of the Portfolio are sold
where such payments are made under a distribution plan adopted by the
Trust on behalf of such Portfolio 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 Portfolio'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 Portfolio'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
Portfolios, including but not limited
2
<PAGE>
to forms of sales support agreements approved in connection with a
distribution 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
3
<PAGE>
statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to 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 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 directors 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 directors, 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
<PAGE>
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 directors 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 directors, 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 directors, 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
directors, 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 directors 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 directors, 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 practical:
(a) of any request by the SEC for amendments to
the registration statement or prospectus then in effect;
5
<PAGE>
(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 Portfolios
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 or law or for any
loss suffered by the Trust or any Portfolio 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
Portfolio, 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
6
<PAGE>
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 Portfolio, without
penalty, on not less than sixty 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 Portfolio, 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.
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 ANNUITY TRUST
By:
------------------------------
Name: A. Max Walker
Title: Chairman of the
Board of Trustees
Accepted:
STEPHENS INC.
By:
-----------------------
Name: Richard H. Blank, Jr.
Title: Senior Vice President
Dated as of February _____, 1998
7
<PAGE>
SCHEDULE I
1. Nations Balanced Assets Portfolio
2. Nations Disciplined Equity Portfolio
3. Nations International Growth Portfolio
4. Nations Managed Index Portfolio
5. Nations Managed SmallCap Index Portfolio
6. Nations Marsico Focused Equities Portfolio
7. Nations Marsico Growth & Income Portfolio
8. Nations Value Portfolio
Approved: December 9, 1997
8
EXHIBIT 99.B6(b)
NATIONS ANNUITY TRUST
SALES SUPPORT AGREEMENT
Ladies and Gentlemen:
We are the exclusive distributor of the shares of the
portfolios of Nations Annuity Trust (the "Trust") (each a "Portfolio"
and collectively the "Portfolio") pursuant to the terms of a
Distribution Agreement with the Trust. We invite you to participate in
the distribution of those Portfolio shares listed on Schedule I hereto
(the "Shares"), as such Schedule may be amended from time to time, on
the following terms:
1. Registration Under Federal, State And Local Law To Act As Broker/Dealer
(a) You represent and warrant that you are a registered broker or
dealer pursuant to the Securities Exchange Act of 1934, as amended
("1934 Act"), and a member of the National Association of Securities
Dealers, Inc. (the "NASD"), and that you will maintain such registration
and membership and abide by the Rules of Fair Practice, the Constitution
and By-Laws of the NASD and all other rules and regulations that are now
or may become applicable to you and your activities hereunder. You agree
that you will immediately advise us in the event of your expulsion or
suspension from the NASD.
(b) You represent and warrant that you are registered or qualified
to act as a broker or dealer in the states or other jurisdictions where
you transact business. You agree that you will maintain such
registrations or qualifications in full force and effect throughout the
term of this Agreement. You agree to comply with all applicable federal,
state and local laws, including, without limiting the generality of the
foregoing, the Securities Act of 1933, as amended ("1933 Act"), the 1934
Act and the Investment Company Act of 1940, as amended ("1940 Act"), and
all applicable rules or regulations thereunder. You agree to offer and
sell Shares only in the states and other jurisdictions in which we have
indicated that such offers and sales can be made and in which you are
qualified to act. You further agree not to offer or sell Shares outside
the several states, territories or possessions of the United States.
2. Sale Of Portfolio Shares
(a) You agree to offer and sell Shares of the Portfolios to your
customers ("Customers") only at the applicable public offering price
(which is the net asset value per share plus the applicable sales load,
if any) then in effect as described in the respective Portfolio's then
currently effective prospectus, including any supplements or amendments
thereto ("Prospectus"). You may establish and charge reasonable service
fees to your Customers for processing exchange or redemption orders for
Shares, provided you disclose the fees to your Customers and provided
further that such fees do not constitute sales loads as defined in
Section 2(a)(35) of the 1940 Act.
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(b) You agree to provide reasonable sales support assistance in
connection with the sale of those Shares for which a distribution plan
has been adopted pursuant to Rule 12b-1 under the 1940 Act to your
Customers, which assistance may include forwarding sales literature and
advertising provided by us to your Customers and providing such other
sales support assistance as may be requested by us from time to time.
All support services rendered by you shall be performed in a
professional, competent and timely manner.
(c) We will furnish you, upon request, with a reasonable quantity
of copies of the Prospectuses, Statements of Additional Information,
sales literature issued by us supplemental to the Prospectuses and
Statements of Additional Information ("Sales Literature") and amendments
and supplements thereto. You agree that if and when we supply you with
copies of any supplements to any Prospectus, you will affix copies of
such supplements to all such Prospectuses in your possession, that
thereafter you will distribute such Prospectuses only with such
supplements affixed, and that you will present purchase orders for
Shares ("Purchase Orders") only from persons who have received
Prospectuses with such supplements affixed. You agree not to use Sales
Literature in connection with the solicitation of Purchase Orders for
Shares unless accompanied or preceded by the relevant Prospectus.
(d) You agree not to hold Shares that may be subject to a
contingent deferred sales charge in an account registered in your name
or in the name of your nominee for the benefit of your Customers. You
agree to hold such Shares in a separate account for each Customer who is
a beneficial owner of Portfolio Shares.
(e) You agree to submit to us, for review and approval prior to
use, any sales literature prepared by you regarding the Portfolios that
you wish to distribute to your Customers. You will be responsible for
filing such sales literature, if required, with the NASD and other
applicable regulatory authorities.
3. Execution Of Purchase Orders And Redemption Of Shares
(a) Any Purchase Orders for Shares received from you and
accepted by us will be executed at the applicable public offering price
next determined after our receipt and acceptance of such Purchase Order,
in accordance with the Prospectuses. All Purchase Orders must meet the
applicable minimum initial and subsequent investment requirements as
described and set forth in the Prospectuses. You agree to date and time
stamp all orders received by you and to promptly forward all Purchase
Orders to us or the Portfolios' Transfer Agent in time for processing at
the public offering price next determined after receipt by you. You
agree that you will not withhold Purchase Orders or purchase Shares in
anticipation of receiving Purchase Orders from Customers. The procedures
applicable to the handling of Purchase Orders shall be subject to such
instructions as may be issued by us or the Portfolios' Transfer Agent
from time to time.
(b) All Purchase Orders are subject to acceptance by us and
confirmation by the Portfolios or their Transfer Agent. We reserve the
right in our sole discretion to reject any Purchase Order, including
contingent or conditional Purchase Orders, in whole or in part. We
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also reserve the right in our discretion without notice to you to
suspend sales or withdraw the offering of Shares, in whole or part.
(c) If payment for Shares purchased hereunder is not received or
made within the applicable time period specified in the governing
Prospectus, or if you cancel any order at any time after our acceptance
of the Purchase Order, we reserve the right to cancel the sale (or, at
our option, to redeem the Shares), in which case you shall be
responsible to the Portfolios, their Transfer Agent and us for any
losses, claims, damages or expenses resulting from your failure to make
payment or cancellation as aforesaid.
(d) You agree to purchase Shares only through us or from your
Customers. Purchases through us shall be made only for the purpose of
covering Purchase Orders already received from your Customers or for
your bona fide investment. Purchases from your Customers, if any, shall
be at a price that is not less than the applicable net asset value
quoted by the Portfolios at the time of such purchase as determined in
the manner set forth in the Prospectus(es). All transactions in Shares
shall be subject to the terms and provisions set forth in the
Prospectus(es).
(e) Shares purchased hereunder will not be issued in certificated
form except where permitted by the applicable Prospectus, upon written
request by you or your Customer, and only when payment and proper
registration or transfer instructions have been received by the
Portfolios or their Transfer Agent.
4. Representation Regarding The Accuracy Of Customer Instructions
If a Customer's account with a Portfolio is established
without the Customer signing an Account Application, you represent that
the instructions relating to the registration and shareholder options
selected (whether on the Account Application, in some other document or
orally) are in accordance with the Customer's instructions, and you
shall be responsible to the Portfolios, their Transfer Agent and us for
any losses, claims, damages or expenses resulting from acting upon such
instructions.
5. Dealer Is Not An Agent For Stephens Or The Portfolios
(a) You have no authority whatsoever to act as agent for, partner
of, or participant in, a joint venture with the Portfolios or us or any
other member of the Selling Group, and nothing in this Agreement shall
constitute either of us the agent of the other or shall constitute you,
or the Portfolios the agent of each other. In all transactions in
Shares, you are acting as principal or as agent for your Customer and we
are acting as agent for the Portfolios and not as principal.
(b) Neither you nor any of your officers, employees or agents is
authorized to make any representations concerning us, the Portfolios or
the Shares except those contained in the Prospectuses and Statement(s)
of Additional Information, and in Sales Literature provided by us or the
Portfolios. In purchasing Shares through us, you shall rely solely upon
the representations contained in the Prospectus(es), the Statement(s) of
Additional Information and Sales Literature.
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6. Protection Against Unauthorized Use Of The Portfolios' Recordkeeping
Systems
You agree to provide such security as is necessary to
prevent any unauthorized use of the Portfolios' recordkeeping system,
accessed via any computer hardware or software provided to you by us or
the Transfer Agent.
7. Compensation
(a) As compensation for your actions hereunder, you shall be
entitled to receive that portion of the sales load assessed on the
purchase of Shares, if any, by your Customers equal to the dealer
allowance, as set forth in the Prospectus(es). Sales loads and dealer
allowances shall take into account volume discounts, rights of
accumulation, letters of intent, certain reinvestments of redemption
proceeds, certain reductions for designated persons or groups and
exchanges and any other arrangements for the reduction or elimination of
sales loads and dealer allowances, all as described in the
Prospectus(es). You are responsible for obtaining from your Customers
such information as you deem necessary to establish a reasonable basis
for believing that the Customer is eligible for any claimed reductions
in or elimination of sales loads, and for obtaining from your Customers
requisite tax identification numbers and certifications. By transmitting
Purchase Orders to us or to the Portfolios' Transfer Agent, you shall be
deemed to have represented and warranted to us, the Portfolios, and
their Transfer Agent that you have a reasonable basis for believing, and
do believe, that the Customer is eligible for such reduction or
elimination and that, unless you advise us otherwise, you have obtained
the requisite tax identification numbers and certifications. You
acknowledge that, if substantially all sales loads are paid or
re-allowed to you in connection with a purchase of Shares through us,
you may be deemed an "underwriter" of the Shares under the 1933 Act.
(b) As further consideration for the sales support assistance
provided by you under Paragraph 2(b) hereof, we will pay to you, and you
will accept as full payment therefor, a periodic fee based upon a
percentage of the average daily net asset value of the Portfolio Shares
attributable to you, as disclosed in the governing Prospectus. Such fees
shall be used primarily for sales support services provided, and related
expenses incurred, by you. The fee rate payable to you may be
prospectively increased or decreased at any time upon notice to you.
(c) If any Shares are repurchased by or tendered for redemption to
the Portfolios within seven business days after acceptance by us or the
Transfer Agent of the Purchase Order for such Shares, you shall forfeit
the right to and promptly refund to us the full dealer allowance paid or
re-allowed to you in connection with the original Purchase Order.
8. Reports
You agree to provide us at least quarterly a written
report of the amounts expended by you in connection with the provision
of the sales support services referenced in Paragraph 2(b) hereof and
the purposes for which such expenditures were made. In addition, you
agree to cooperate with us in connection with the preparation of reports
to the Board of Trustees of the
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Trust or regulatory authorities concerning this Agreement and the
amounts expended pursuant hereto.
9. Disclosures To Shareholders And Shareholder Voting
(a) You agree and warrant that the compensation payable to you
under this Agreement, together with any other compensation you receive
in connection with the investment of your Customers' assets in Shares,
will be disclosed by you to your Customers to the extent required by
applicable laws and regulations, will be authorized by your Customers
and will not result in an excessive or unreasonable fee to you.
(b) You agree that in the event an issue pertaining to this
Agreement or any distribution plan for the Shares adopted pursuant to
Rule 12b-1 is submitted for shareholder approval, and you have the
authority to do so, you will vote any Shares held for your own account
in the same proportion as the vote of Shares for your Customers'
benefit.
10. Protection Against Unauthorized Use Of Customer Names
The names of your Customers are and shall remain your sole
property and shall not be used by us for any purpose except for
servicing and informational mailings in the normal course of business.
The provisions of this paragraph shall survive the termination of this
Agreement.
11. Indemnification
(a) You agree to indemnify the Portfolios, their Transfer Agent
and us for any losses, claims, damages or expenses arising out of or in
connection with any wrongful act or omission by you, your
representatives, agents or sub-agents not in accordance with this
Agreement, provided that such losses, claims, damages or expenses were
not caused by the indemnities' willful misfeasance, bad faith or gross
negligence.
(b) We agree to indemnify you for any losses, claims, damages or
expenses arising out of or in connection with any wrongful act or
omission by us, provided that such losses, claims, damages or expenses
were not caused by the willful misfeasance, bad faith or gross
negligence by you, your representatives, agents or sub-agents.
(c) The provisions of this paragraph shall survive the termination
of this Agreement.
12. Amendment And Termination Of Agreement
(a) This Agreement shall become effective upon receipt by us of a
signed copy hereof, and shall cancel and supersede any and all prior
Selling Group Agreements or similar agreements or contracts relating to
the distribution of the Shares between you and the Portfolios or their
distributor. We reserve the right to amend this Agreement at any time.
Any amendments to this Agreement shall be deemed accepted by you, and
will take effect with respect to, and on the date of, any orders placed
by you after the date set forth in any notice of amendment sent by us to
you.
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(b) This Agreement may be terminated upon written notice by either
party at any time, and shall automatically terminate upon its assignment
by you, whether by operation of law or otherwise, or by us otherwise
than by operation of law. We reserve the right to cancel this Agreement
at any time without notice if any Shares are offered for sale by you at
less than the applicable public offering price as set forth in the
Prospectus(es).
13. Notices
All communications to us shall be sent to us by first
class mail, postage prepaid, or by confirmed telefacsimile at 111 Center
Street, Little Rock, Arkansas 72201; telefacsimile (501) 377-2331. Any
notice to you shall be duly given if sent by first class mail, postage
prepaid, or by confirmed telefacsimile to you at your address or
telefacsimile number as set forth on the signature page hereof. Any
party that changes its address or telefacsimile number shall promptly
notify the other party in accordance with the terms of this paragraph.
14. Miscellaneous
(a) This Agreement is in all respects subject to statements
regarding the sale and repurchase or redemption of Shares made in the
Prospectuses, and to the Rules of Fair Practice of the NASD, which shall
control and override any provision to the contrary in this Agreement.
You further acknowledge that this Agreement has been entered into
pursuant to Rule 12b-1 under the 1940 Act, and is subject to the
provisions of that Rule as well as any other applicable rules and
regulations promulgated by the Securities and Exchange Commission.
(b) The sub-headings in this Agreement are for convenience only
and are not a part of the Agreement.
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15. Governing Law
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Arkansas without giving effect
to principles of conflict of laws.
Date: ___________________ STEPHENS INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
The undersigned accepts this invitation to become a member of the
Selling Group and agrees to abide by the foregoing terms and conditions.
Print Firm Name: _________________________
Address: ______________________________
------------------------------
------------------------------
Telephone: (___) ______________________
Telefacsimile: (___) __________________
Date: ______________________
By: ________________________________
Name: ______________________________
Title: _____________________________
Please execute this Agreement in duplicate
and return one copy to Stephens Inc.
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SCHEDULE I
NATIONS ANNUITY TRUST
Nations Balanced Assets Portfolio
Nations Disciplined Equity Portfolio
Nations International Growth Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Marsico Focused Equities Portfolio
Nations Marsico Growth & Income Portfolio
Nations Value Portfolio
8
EXHIBIT 99.B6(c)
NATIONS ANNUITY TRUST
SHAREHOLDER SERVICING AGREEMENT
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
("Agreement") with you concerning the provision of shareholder support
services to your clients ("Customers") who invest in one or more of the
portfolios (each a "Portfolio" and collectively, "Portfolios") of
Nations Annuity Trust (the "Trust") by purchasing contracts.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following shareholder support
services to your Customers: (i) general shareholder liaison services;
(ii) processing purchases and redemption requests; (iii) processing
dividend and distribution payments; (iv) providing sales information
periodically to Customers, including information showing their
contracts' positions in the Portfolios; (v) providing sub-accounting;
(vi) responding to inquiries from Customers; (vii) arranging for bank
wires; and (viii) providing such other similar services as may be
reasonably requested. Servicing agents may include participating
insurance companies. All services rendered hereunder by you shall be
performed in a professional, competent and timely manner.
Section 2. You will perform only those activities which are
consistent with statutes and regulations applicable to you. You will act
solely as agent or, upon the order of, and for the account of, your
Customers.
Section 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any
personnel employed by you) as may be reasonably necessary or beneficial
in order to provide the shareholder support services contemplated
hereby.
Section 4. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or the
Portfolios except those contained in our then current prospectus and
statement of additional information, as amended or supplemented from
time to time, copies of which will be supplied by us to you, or in such
supplemental literature or advertising as may be authorized by the
Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect, except as provided herein.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all
direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of shares (or orders
relating to the same) by or on behalf of Customers.
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You and your employees will, upon request, be available during normal
business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 6. In consideration of the services and facilities
provided by you hereunder, we will pay to you, and you will accept as
full payments therefor, a fee as described in the applicable then
current prospectus. The fee rate payable to you may be prospectively
increased or decreased by us, in our sole discretion, at any time upon
notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of shares of any and all Portfolios,
including the sale of shares to you for the account of any Customer or
Customers. Compensation payable under this Agreement is subject to,
among other things, the National Association of Securities Dealers, Inc.
("NASD") Rules of Conduct governing receipt by NASD members of service
fees from registered investment companies (the "NASD Service Fee Rule").
Such compensation shall only be paid if permissible under the NASD
Service Fee Rule and shall not be payable for services that are deemed
to be distribution-related services.
Section 7. You agree to provide to us at least quarterly, a
written report of the amounts expended by you in connection with the
provision of shareholder support services hereunder and the purposes for
which such expenditures were made. In addition, you will furnish us or
our designees with such information as we or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and will
otherwise cooperate with us and our designees (including, without
limitation, any auditors or legal counsel designated by us), in
connection with the preparation of reports to our Board of Trustees
concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by
law.
Section 8. We may enter into other similar Agreements with any
other person or persons without your consent.
Section 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the
services provided by you hereunder be primarily intended to result in
the sale of any shares issued by us; (ii) the compensation payable to
you hereunder, together with any other compensation you receive in
connection with the investment of your Customers' assets in shares of
the Portfolios, will be disclosed by you to your Customers to the extent
required by applicable laws or regulations, will be authorized by your
Customers and will not result in an excessive or unreasonable fee to
you; and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any shares held for your own account in
the same proportion as the vote of the shares held for your Customers'
benefit.
Section 10. You agree to conform to compliance standards adopted
by the Trust or its distributor as to when a class of shares in a
Portfolio may be appropriately sold to particular investors.
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Section 11. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee
and continues in effect until terminated. This Agreement is terminable,
without penalty, at any time by us (which termination may be by a vote
of a majority of the disinterested Trustees of the Trust) or by you upon
written notice to the other party hereto.
Section 12. All notices and other communications to either you or
us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address or number
stated herein (with a confirming copy by mail), or to such other address
as either party shall so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with
the internal laws of Delaware without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
Section 14. The names "Nations Annuity Trust" and "Trustees" 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 dated November 24, 1997, which is hereby referred to and a copy
of which is on file at the office of the Secretary of State of Delaware
and at the principal office of the Trust. The obligations of "Nations
Annuity 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 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.
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If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and
promptly return it to us, at the following address: 111 Center Street,
Little Rock, Arkansas 72201; Fax No. (501) 377-2331; Attention: Mr.
Richard H. Blank, Jr.
Very truly yours,
NATIONS ANNUITY TRUST
Date: ____________________ By:_____________________________
Name:________________________
Title:_________________________
Accepted and Agreed to:
Servicing Agent
------------------------------
(Firm Name)
------------------------------
(Address)
------------------------------
(City) (State)
Fax # _________________________
Attention: _____________________
Date:_____________________________ By:___________________________
Name: ________________________
Title: _________________________
4
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this day of February, 1998, between NATIONSBANC
ADVISORS, INC.,a registered investment advisor, (the "Advisor), NATIONS ANNUITY
TRUST, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and HARTFORD LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Connecticut (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, Advisor is duly registered as an investment advisor under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and,
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts, and may, in the future, desire to act as an investment vahicle for
separate accounts established for variable life insurance policies, in each
case, to be offered by insurance companies that have entered into participation
agreements with the Trust (the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Funds"); and
WHEREAS, the Company has registered or will register certain variable
life insurance policies and/or variable annuity contracts under the 1933 Act
(the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Company desires to utilize shares of one or more Funds as
an investment vehicle of the Accounts;
<PAGE>
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1 The Trust shall make shares of its Funds available to the Accounts
at the net asset value next computed after receipt of such purchase order by the
Trust (or its agent), as established in accordance with the provisions of the
then current prospectus of the Trust. Shares of a particular Fund of the Trust
shall be ordered in such quantities and at such times as determined by the
Company to be necessary to meet the requirements of the Contracts. The Officers
or Trustees of the Trust (the "Trustees") may refuse to sell shares of any Fund
to any person, or suspend or terminate the offering of shares of any Fund if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Officers or Trustees acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Fund.
1.2 The Trust will redeem any full or fractional shares of any Fund
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that (i) such orders are received by the Company in good order prior to
the time the net asset value of each Fund is priced in accordance with its
prospectus and (ii) the Trust receives written notice of such orders by 9:30
a.m. New York time on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading and on which
the Trust calculates its net asset value pursuant to the rules of the Securities
and Exchange Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid by the Company no later than 12:00 noon New York
time on the same Business Day that the Trust receives notice of the order.
Payments shall be made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry
only.
<PAGE>
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Fund's shares in additional shares of that
Fund. The Trust shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.7 The Trust shall make the net asset value per share for each Fund
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. New York time.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by any exemptive order that may be
obtained by the Trust from the SEC (any such order is referred to herein as the
Exemptive Order. No shares of any Fund will be sold directly to the general
public. The Company agrees that Trust shares will be used only for the purposes
of funding the Contracts and Accounts listed in Schedule A, as amended from time
to time.
1.9 The Trust agrees that, to the extent required by the SEC pursuant
to the Exemptive Order or otherwise, all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.7 and
Article IV of this Agreement.
ARTICLE II
Obligations of the Parties
2.1 The Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing, all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Trust. The Trust shall bear the costs of registration and qualification
of its shares, preparation and filing of the documents listed in this Section
2.1 and all taxes to which an issuer is subject on the issuance and transfer of
its shares.
2.2 As mutually agreed, the Trust shall either (a) provide the Company
with as many copies of the Trust's current prospectus, annual report,
semi-annual report and other shareholder communications, including any
amendments or supplements to any of the foregoing, as the Company shall
reasonably request; or (b) provide the Company with a camera ready copy of such
documents in a form suitable for printing. The Trust
<PAGE>
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust shall provide the
Company with copies of any Trust-sponsored proxy materials in such quantity as
the Company shall reasonably require for distribution to Contract owners.
2.3 The Trust and Company shall pay no fee or other compensation to
each other under this agreement. All expenses incident to the performance of the
Company's obligations under this agreement shall be borne by the Company, except
as expressly provided otherwise. All expenses incident to the performance of the
Trust's obligation under this agreement shall be borne by the Trust, except as
expressly provided otherwise. The Trust shall bear the costs of printing and
distributing the Trust's prospectus, statement of additional information,
shareholder reports and other shareholder communications to Contract owners for
which the Trust is serving or is to serve as an investment vehicle. If the
parties agree to have such documents printed by the Company in accordance with
Section 2.2(b), the Trust shall reimburse the Company for all actual resonable
expenses incurred in connection therewith. The Trust shall bear the costs of
distributing Trust sponsored proxy materials (or similar materials such as
voting solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that all proxy materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4 The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Advisor is named at least ten Business
Days prior to the filing of such document with the SEC. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Advisor is named, at least five Business Days prior to it use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within five Business Days after receipt of such material.
2.5 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Advisor other than information or representations or statements contained in
and accurately derived from the registration statement or prospectus for the
Trust shares (as such registration statement and prospectus may be amended or
supplemented from time to time), reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
2.6 The Trust or Advisor shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information, statements or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or
<PAGE>
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
2.7 So long as, and to the extent that the SEC requires pass-through
voting privileges for variable Contract owners, pursuant to the Exemption Order
or otherwise, the Company will provide pass-through voting privileges to owners
of policies whose cash values are invested, through the Accounts, in shares of
the Trust. The Trust shall require all Participating Insurance Companies to
handle voting privileges in the same manner and the Company shall be responsible
for assuring that the Accounts handle voting privileges in the manner
established by the Trust. With respect to each Account, the Company will vote
shares of the Trust held by the Account and for which no timely voting
instructions from policyowners are received as well as shares its owns that are
held by that Account, in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way recommend
or oppose or interfere with the solicitation of proxies for Trust shares held by
Contract owners without the prior written consent of the Trust, which consent
may be withheld in the Trust's sole discretion.
2.8 The Company shall notify the Trust of any applicable state
insurance laws that it is aware of that restrict the Funds' investments or
otherwise affect the operation of the Trust and shall promptly notify the Trust
of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law on the date set forth in Schedule A. The Company
shall amend its registration statement under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
Contracts. The Company shall register and qualify the Contracts for sale in
accordance with securities laws of the various states only if and to the extent
deemed necessary by the Company
3.2 The Company represents and warrants that each Account has been
legally and validly established as a segregated asset account under applicable
state law and has been registered or, prior to any issuance or sale of the
Contracts, will be registered as a unit investment trust in accordance with the
provisions of the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests
in the Accounts will be issued and sold in compliance in all material respects
with all applicable federal and state securities and insurance suitability
requirements and are or, prior to issuance, will be registered as securities
under the 1933 Act.
<PAGE>
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5 The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6 The Trust and Advisor represent and warrant that the investments of
each Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder. In the event the Trust ceases to so qualify, it will
take all reasonable steps (a) to notify the Company of such event and (b) to
adequately diversity the Fund so as to achieve compliance within the grace
period afforded by Regulation 817-5.
3.7 The Company represents and warrants that the Contracts are
currently treated as annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended, and that it will make every effort to
maintain such treatment and that it will notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
3.8 The Trust represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended, the Trust undertakes to have its board of Trustees, a majority
of whom are not interested persons of the Trust, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
3.9 The Advisor represents and warrants that it is duly registered as
an investment advisor under the Investment Advisers Act of 1940, as amended, and
any applicable state securities laws.
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or
<PAGE>
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any Fund are
being managed; (e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract owners. The Trustees
shall promptly inform the Company if they determine that an irreconcilable
material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Fund and
reinvesting such assets in a different investment medium, including (but not
limited to) another Fund of the Trust, or (b) submitting the question of whether
or not such segregation as described below should be implemented to a vote of
all affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of having their assets segregated; or (c)
establishing a new registered management investment company or separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that such an election has been made. Until the end of such six (6) month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state
<PAGE>
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonable request so that the
Trustees may fully carry out their duties and responsibilities as Trustees; and
said reports, materials and data shall be submitted more frequently if deemed
appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable. The provisions of the
Article IV shall become effective and shall continue in effect only so long as
the Trust operates pursuant to an Exemptive Order that contains conditions
substantially identical to those contained in this Article IV. The Company and
the Trustee agree to negotiate in good faith any modifications to the provisions
of this Article IV may be necessary or appropriate to comply with the Exemptive
Order or any such Rule amendment or adoption.
ARTICLE V
Indemnification
<PAGE>
5.1 Indemnification By the Company. Except to the extent provided in
Sections 5.4 and 5.5, the Company agrees to indemnify and hold harmless the
Trust and each of its Trustees, officers, employees and agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Article V) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on behalf of the Contracts
of Accounts (or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the Trust for use in
Company Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 5.2(a) or wrongful conduct of the
Company or persons under its control, with respect to the sale or distribution
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust Documents as
defined in Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
and accurately derived from written information furnished to the Trust by or on
behalf of the Company; or persons under its control; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
<PAGE>
5.2 Indemnification By the Trust. Except to the extent provided in
Sections 5.4 and 5.5, the Trust agree to indemnify and hold harmless the Company
and each of its directors, officers, employees and agents and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Article V) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to the Trust by or on behalf of the Company or persons
under its for use in Trust Documents or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company Documents or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Trust; or
persons under its control; or
(d) arise out of or result from any failure by the Trust to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust.
<PAGE>
5.3 Indemnification By Advisor. Except to the extent provided in
Sections 5.4 and 5.5, the Advisor agrees to indemnify and hold harmless the
Company and each of its directors, officers, employees and agents and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Article
V) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Advisor) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to the Advisor by or on behalf of the Company or persons
under its control for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Advisor or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company Documents or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Advisor; or
persons under its control; or
(d) arise out of or result from any failure by the Advisor to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Advisor in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Advisor.
5.4 Neither the Company, the Trust nor the Advisor shall be liable
under the indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable,
with respect to any Losses incurred or assessed against an Indemnified Party
that arise from such Indemnified party's willful misfeasance, bad faith or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.5 Neither the Company, the Trust nor the Advisor shall be liable
under the indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable,
with respect to any
<PAGE>
claim made against an Indemnified Party unless such Indemnified Party shall have
notified the other party in writing within a reasonable time after the summons,
or other first legal process, giving information of the nature of the claim
shall have been served upon or otherwise received by such Indemnified Party (or
after such Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party against
whom indemnification is sought of any such claim shall not relieve that party
from any liability which it may have to the Indemnified party in the absence of
Sections 5.1, 5.2 and 5.3.
5.6 In case any such action is brought against any Indemnified Party,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI
Termination
6.1 This Agreement may be terminated by either party for any reason by
one years advance written notice delivered to the other party.
6.2 Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
the Trust (or any Fund) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provision of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
<PAGE>
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Advisor:
NationsBanc Advisor, Inc.
NCI - 002-3331
101 South Tryon Street
Charlotte, NC 28255
Attention: Mark H. Williamson
President
If to the Trust:
Nations Annutiy Trust
NCI-002-3331
101 South Tryon Street
Charlotte, NC 28255
Attention: Richard H. Blank, Jr.
Corporate Secretary
If to the Company:
Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, Connecticut 06089
Attention: Lynda Godkin
General Counsel
ARTICLE VIII
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 This Agreement constitutes the entire agreement among the parties
with respect to the matters covered hereby. If any provision of this Agreement
shall be held
<PAGE>
or made invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities. Obligations and liabilities with respect to a Fund may be satisfied
from the assets belonging to that Fund but no other assets.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
National Association of Securities Dealers, Inc., and state insurance
regulators) and shall permit such authorities reasonable access to its books and
records in connection with an investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Participation Agreement as of the date and year first above
written.
NATIONSBANC ADVISORS, INC.
By:
Mark H. Williamson
President
NATIONS ANNUITY TRUST
<PAGE>
By:
A. Max Walker
President
HARTFORD LIFE INSURANCE COMPANY
By:
Stephen T. Joyce
Vice President
<PAGE>
Schedule A
Separate Accounts
Name of Separate Account
Separate Account Two of Hartford Life Insurance Company
mo29940/nationsva
EXHIBIT 99.B8(b)
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Nations Annuity Trust
Global Custody Agreement
- ----------------------------------------------------------------------
<PAGE>
Global Custody Agreement
Agreement dated as of February __, 1998, between The Bank of New York
(the "Custodian"), acting through its office at 35 avenue des Arts,
Brussels, Belgium, and Nations Annuity Trust (the "Client"), on behalf
of the portfolios listed on Appendix F (individually a "Portfolio" and
collectively the "Portfolios").
Whereas, the Client desires to arrange for the custody of certain of its
assets and the provision of related services by the Custodian;
Now, Therefore, in consideration of the mutual agreements contained
herein, the Custodian and the Client agree as follows:
1. Definition
The following terms, as used herein, shall have the following meanings:
"Authorized Instruction" means (i) a written, oral or electronic
communication accepted by the Custodian in good faith that has been
transmitted subject to the Security Procedures agreed upon in writing by
the Custodian and the Client or (ii) any other written, oral or
electronic communication that the Custodian believes in good faith to
have been given by an Authorized Person. In the event the Client chooses
to use facsimile as a method of communication hereunder, the Custodian
requires the use of a test key facility, or in such absence, a letter of
indemnification to the Custodian in form and substance satisfactory to
it.
"Authorized Persons" means those individuals who have been designated by
or duly authorized by the Client pursuant to necessary corporate or
other action (which shall be evidenced by appropriate documentation
delivered to the Custodian) to act on behalf of the Client in connection
with this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Client has delivered to the Custodian
appropriate documents revoking the authority of such persons.
"Cash" has the meaning set forth in Section 5.
"Cash Account" means a current account (which may be divided into a
number of subaccounts, denominated in U.S. dollars, Belgian francs or
any other currency or Composite Currency Unit acceptable to the
Custodian) opened by the Custodian on its books in the name of the
Client on behalf of a Portfolio.
"Communication Products" has the meaning set forth in Section 26.
"Composite Currency Units" means the European Currency Unit ("ECU"), the
Special Drawing Right ("SDR") or another composite unit consisting of
the aggregate of specified amounts of specified currencies, as such ECU,
SDR or other unit may be constituted from time to time.
"IMRO Rules" means the rules of the Investment Management Regulatory
Organization Limited, as in effect on the date hereof.
1
<PAGE>
"BONY Affiliate" means any office or branch of The Bank of New York
("BONY") and any other entity that directly, or indirectly through one
or more intermediaries, controls BONY or that is controlled by or is
under common control with BONY.
"Securities Account" means any securities account opened by the
Custodian on its books in the name of the Client on behalf of a
Portfolio.
"Securities Depository" means any securities depository, book-entry
system or clearing system used by the Custodian from time to time in
accordance with Section 4(e) hereof.
"Security" means any share, stock, bond, debenture, note, certificate of
indebtedness, warrant or other security or financial instrument
acceptable to the Custodian (whether represented by a certificate or by
a book-entry on the records of the issuer or other entity responsible
for recording such book-entries) that is from time to time held for the
account of a Portfolio directly, or indirectly through a subcustodian or
Securities Depository, by the Custodian pursuant to this Agreement.
"Security Procedure" means, for any specified method of communication, a
procedure agreed upon in writing by the Custodian and the Client for the
purpose of verifying that an Authorized Instruction given pursuant to
such method of communication is that of the Client or detecting error in
the transmission or the content of such Authorized Instruction. A
Security Procedure may require the use of algorithms or other codes,
identifying words or numbers, encryption, callback procedures, or
similar security devices.
"Subcustodian" means any bank or other institution (other than a
Securities Depository) used by the Custodian to hold Securities from
time to time in accordance with Section 4(e) hereof.
"Tax" has the meaning set forth in Section 9.
2. Representations, Warranties and Covenants of the Client
The Client represents and warrants that the execution, delivery and
performance by the Client of this Agreement (i) are within the Client's
corporate, trust or other constitutive powers; (ii) have been duly
authorized by all necessary corporate, trust or other appropriate action
under its organizational documents; (iii) require no action by or in
respect of, any governmental body, agency or official (including without
limitation any exchange control approvals); and (iv) do not contravene,
or constitute a default under, any provision of applicable law or
regulation or of the organizational documents of the Client or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon the Client. The Client represents, warrants and covenants
that the Custodian shall be entitled to transfer all Securities, in
accordance with Authorized Instructions, free of any proprietary or
equitable interest of any person or entity (other than interests of the
Portfolios of the Client and interests of the Custodian, Subcustodians
and Securities Depositories that are created by this Agreement). The
Client agrees to inform the Custodian immediately if any statement set
forth in this Section 2 ceases to be true and correct as of any date
after the date hereof.
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3. Securities Accounts
The Client hereby establishes with the Custodian one or more Securities
Accounts, which shall contain, in the manner and on the terms specified
herein, each Portfolio's Securities.
4. Terms of Custody
(a) Authority to Hold Securities. Subject to the terms and conditions of
this Agreement, the Client hereby authorizes the Custodian to hold any
Securities received from time to time for the account of the Client. The
Custodian may, at its sole discretion, hold the Securities directly or
indirectly through one or more eligible Subcustodians or Securities
Depositories. Securities held indirectly through any Subcustodian shall
be held subject to the terms and conditions of the Custodian's agreement
with such Subcustodian. Securities held indirectly through any
Securities Depository shall be held subject to the terms of any
agreement between the Custodian or Subcustodian and such Securities
Depository and to the rules and terms and conditions of such Securities
Depository.
(b) Fungibility. All Securities of any issue shall be treated as
fungible with all other Securities of the same issue held by the
Custodian directly, or indirectly through any Subcustodian or Securities
Depository. Therefore, the Client shall have no right to any specific
securities of an issue but shall instead be entitled, subject to
applicable laws and regulations and to the terms of this Agreement, to
transfer, deliver or repossess from the Custodian an amount of
securities of such issue that is equivalent to the amount of such
securities credited to a Securities Account, without regard to the
certificate numbers (or other identifying information) of the Securities
originally deposited, and the Custodian's obligation to the Client with
respect to such Securities shall be limited to effecting such transfer,
delivery or repossession.
(c) Identification of Client's Interests. The Custodian shall cause the
Client's interest in any Securities held by the Custodian directly, or
indirectly through any Subcustodian or Securities Depository, to be
evidenced by a credit to a Securities Account on the books of the
Custodian. The Custodian shall instruct each Subcustodian to credit all
Securities held by such Subcustodian directly, or indirectly through a
Securities Depository, to an account of the Custodian on the books of
such Subcustodian. The Custodian shall instruct, or direct the relevant
Subcustodian to instruct, each Securities Depository to credit all
Securities held by such Securities Depository to an account of the
Custodian or the relevant Subcustodian on the books of such Securities
Depository. Securities may be registered in the name of the Custodian's
nominee or, as to any Securities held by an entity other than the
Custodian, in the name of such entity's nominee. The Client agrees to
hold any such nominee harmless from any liability but only as a holder
of record of such Securities.
(d) Liens of Subcustodians and Securities Depositories. Unless the
Custodian has received Authorized Instructions to the contrary, the
Custodian shall hold Securities indirectly through a Subcustodian or
Securities Depository only if (i) the Securities are not subject to any
right, charge, security interest, lien or claim of any kind in favor of
such Subcustodian or Securities Depository or the creditors or operators
of any of them, including a receiver or trustee in bankruptcy or similar
authority, except for a claim of payment for the safe custody or
administration of the Securities or for Portfolios advanced on behalf of
the Client by such
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Subcustodian or Securities Depository and (ii) beneficial ownership of
the Securities is freely transferable without the payment of money or
value other than for safe custody or administration.
(e) Selection of Subcustodians and Securities Depositories. The list of
Subcustodians and Securities Depositories used by the Custodian as of
the date hereof is listed on Appendices A1 and A2 hereto. The Custodian
reserves the right to add and delete eligible Subcustodians and
Securities Depositories to and from such list from time to time by
notice to the Client, provided that any Subcustodians that are added
shall constitute an "Eligible Foreign Custodian" within the meaning of
Rule 17f-5 under the Investment Company Act of 1940 (the "1940 Act").
The Custodian agrees to promptly notify Client if it learns that any
Subcustodian no longer constitutes an "Eligible Foreign Custodian" and
of any failure by any Subcustodian to observe any material term of its
appointment. The Custodian agrees that if it replaces the Subcustodian
or Securities Depository used in any country with another Subcustodian
or Securities Depository, it will not transfer any of the Client's
Securities from the former Subcustodian or Securities Depository for
such country to the replacement Subcustodian or Securities Depository
for such country without giving the Client at least 60 days' prior
written notice.
(f) Notwithstanding anything herein to the contrary, neither the
Custodian nor Subcustodian shall have the authority to pledge or lend
any securities.
5. Cash Account
(a) The Client hereby establishes and shall maintain with the Custodian
a Cash Account to be used in connection with transactions relating to
the Securities. The collected balance from time to time in the Cash
Account shall constitute "Cash". Any credit made to the Cash Account
shall be provisional and may be reversed if such payment is not actually
collected or received.
(b) Except as otherwise provided by law, the Cash Account (including
subdivisions maintained in different currencies, including Composite
Currency Units) shall constitute one single and indivisible current
account. Consequently, the Custodian has the option of transferring the
balance of any subaccount of the Cash Account to any other subaccount at
any time provided prior notice.
(c) The Custodian may in accordance with customary practice hold any
currency (other than Belgian Francs) or Composite Currency Unit in which
any subdivision of the Cash Account is denominated on deposit in, and
effect transactions relating thereto through, an account (a "Foreign
Account") with a BONY Affiliate or another bank in the country where
such currency is the lawful currency or in other countries where such
currency or Composite Currency Unit may be lawfully held on deposit.
(d) The Custodian shall have no liability for any loss or damage arising
from the applicability of any law or regulation now or hereafter in
effect, or from the occurrence of any event, which may affect the
transferability, convertibility, or availability of any currency (other
than Belgian Francs) or Composite Currency Unit in the countries where
such Foreign Accounts are maintained and in no event shall the Custodian
be obligated to substitute another currency for a currency (including a
currency that is a component of a Composite Currency Unit) whose
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transferability, convertibility or availability has been affected by
such law, regulation or event. To the extent that any such law,
regulation or event imposes a cost or charge upon the Custodian in
relation to the transferability, convertibility, or availability of any
such currency or Composite Currency Unit, such cost or charge shall be
for the account of the Client. If pursuant to any such law or
regulation, or as a result of any such event, the Custodian cannot deal
in any component currency of a Composite Currency Unit or effect a
particular transaction in a Composite Currency Unit on behalf of the
Client, the Custodian may thereafter treat any account denominated in an
affected Composite Currency Unit as a group of separate accounts
denominated in the relevant component currencies.
(e) Transactions in a currency or Composite Currency Unit shall be
subject to the regulations laid down by the exchange control authorities
of Belgium and of the country where such currency (or component
currency) is the lawful currency or where such currency or Composite
Currency Unit is held on deposit. The Client's Cash Account will be
governed further in accordance with the Service Level Description.
Instructions by the Client
(a) Generally. The Client shall give an Authorized Instruction with
respect to Cash and Securities only to the Custodian or to the
Custodian's designee. The Client agrees to be bound by all Authorized
Instructions, whether or not such instructions were duly authorized in
accordance with the Client's own procedures. The Custodian shall not be
required to follow any Authorized Instruction that would violate any
applicable law, decree, regulation or order of any government or
governmental body (including any court or tribunal) or that would be
contrary to any provision of this Agreement.
(b) Payments. Payments shall be made by the Custodian, or a Subcustodian
at the direction of the Custodian, only to the extent that sufficient
Cash in the applicable currency is available in the Cash Account or
otherwise available therefor and only (i) as specified by an Authorized
Instruction, (ii) as permitted by Sections 14 and 15 or (iii) upon the
termination of this Agreement as set forth in Section 16 hereof. The
Custodian may make payments, or direct a Subcustodian to make payments,
from time to time on behalf of the Client when sufficient Cash in the
applicable currency is not available in the Cash Account or otherwise
available therefor, but neither the Custodian nor any Subcustodian shall
have any obligation to make such payments. If any payments are made that
result in an overdraft in a particular currency, then such overdraft
shall be payable on demand by the Custodian and shall bear interest for
each day outstanding at the rate customarily charged by the Custodian
for overdrafts in such currency.
(c) Delivery of Securities. Any Securities held by a Subcustodian shall
be subject only to the instructions of the Custodian and any Securities
held by a Securities Depository shall be subject only to the
instructions of the Custodian or the Subcustodian for which such
Securities Depository is acting. Securities shall be transferred,
exchanged, or delivered by the Custodian, or a Subcustodian at the
direction of the Custodian, only to the extent that sufficient
Securities are actually in a Securities Account and available for
delivery and only:
(i) As specified by an Authorized Instruction;
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(ii) In exchange for or upon conversion into other Securities or
Cash pursuant to a plan of merger, consolidation,
reorganization, recapitalization or readjustment;
(iii) Upon the conversion of Securities pursuant to their terms into
other Securities;
(iv) As permitted by Sections 14; or
(v) Upon the termination of this Agreement as set forth in Section
16 hereof.
7. Corporate Events
(a) Collections. Unless the Custodian has received an Authorized
Instruction to the contrary, the Custodian shall, or shall instruct the
appropriate Subcustodian to, collect dividends, interest and other
payments made and stock dividends, rights and similar distributions made
or issued with respect to Securities and present for payment maturing
Securities and those called for redemption, in each case net of any
applicable taxes or other charges withheld by the maker of such payment
or distribution. Neither the Custodian nor any Subcustodian shall have
any obligation to commence legal proceedings or to take other
extraordinary actions to collect any of the foregoing payments or
distributions.
(b) Rights Offerings. Promptly after the Custodian becomes aware
thereof, the Custodian shall notify the Client of any rights offering by
an issuer of Securities. If the Client does not send an Authorized
Instruction to the Custodian regarding the exercise of rights under such
offering by the reasonable deadline set by the Custodian in such notice,
then to the extent permitted by applicable law and consistent with local
market practice, the Custodian or the applicable Subcustodian shall sell
such rights in the principal market for such rights and deposit the
proceeds of such sale in the Cash Account.
(c) Partial Redemptions. Promptly after the Custodian becomes aware
thereof, the Custodian shall notify the Client of the partial redemption
of any Securities. If the Custodian or any Subcustodian or Securities
Depository holds any Securities in which the Client has an interest as
part of a fungible mass, the Custodian or such Subcustodian or
Securities Depository may select the securities to participate in
partial redemptions, partial payments or other actions affecting less
than all securities of the relevant class in any non-discriminatory
manner that it customarily uses to make such selection.
(d) Authority of Custodian. Unless the Custodian has received an
Authorized Instruction to the contrary, the Custodian shall, or shall
instruct the appropriate Subcustodian to: (i) execute in the name of the
Client such ownership and other certificates as may be required to
obtain payment or exercise any rights in respect of any Securities; (ii)
accept and open all mail directed to the Client in care of the Custodian
or such Subcustodian; and (iii) retain or dispose of fractional
interests received by the Custodian or such Subcustodian as a result of
stock dividends in accordance with local law and practice. With respect
to any corporate events not listed above, the Custodian shall (in the
absence of an Authorized Instruction from the Client within any
prescribed deadline) take any action that it considers appropriate in
the circumstances; provided that the Custodian shall not be liable for
the consequences of any such action.
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The Custodian's duties in relation to Corporate Actions will be governed
further in accordance with the Service Level Description.
8. Reporting
(a) Statements. The Custodian shall mail, or cause to be mailed, or
transmit electronically to the Client (or, with prior written consent of
the Client, make available electronically) monthly statements of the
Securities Accounts and Cash Account for each Portfolio. Such statements
shall list all Securities and Cash and specify (i) whether the
Securities are held directly by the Custodian or indirectly through a
Subcustodian or Securities Depository (ii) the amount of Cash held on
deposit in each currency. The Client agrees that each such statement
shall be binding on the Client 30 days after (a) in the case of any
statement sent by mail, it has been mailed by first class mail, postage
prepaid or (b) in the case of any statement transmitted or made
available electronically, it has been transmitted or made available
electronically to the Client, unless the Client has therefore notified
the Custodian in writing of any inaccuracy in such statement subject
always to the Custodian's overriding duty to reconcile its records to
the Cash and Securities actually held.
(b) Access to Records. The Custodian shall allow the Client and its
independent public accountants reasonable access to the records of the
Custodian relating to the Securities and Cash as is required by the
Client or its accountants in connection with their examination of the
books and records pertaining to the affairs of the Client and shall
require each Subcustodian and Securities Depository to grant such access
to the Client and its independent public accountants to the extent
consistent with applicable law and regulations. The Custodian has no
obligation to maintain any records for a period of more than 10 years.
9. Taxes
The Client shall be liable for all taxes, assessments, duties and other
governmental charges, including any interest or penalty with respect
thereto ("Taxes"), with respect to any Cash, Securities or other
property held on behalf of the Client or any transaction related
thereto. The Client shall indemnify the Custodian and each Subcustodian
for the amount of any Tax that the Custodian, any such Subcustodian or
any other withholding agent is required under applicable laws (whether
by assessment or otherwise) to pay on behalf of, or in respect of income
earned by or payments or distributions made to or for the account of,
the Client (including any payment of Tax required by reason of an
earlier failure to withhold) . The Custodian shall, or shall instruct
the applicable Subcustodian or other withholding agent to, withhold the
amount of any Tax which is required to be withheld under applicable law
upon collection of any dividend, interest or other distribution made
with respect to any Security and any proceeds or income from the sale,
loan or other transfer of any Security. In the event that the Custodian
or any Subcustodian is required under applicable law to pay any Tax on
behalf of the Client, the Custodian is hereby authorized to withdraw
Cash from any subaccount of the Cash Account in the amount required to
pay such Tax and to use such Cash, or to remit such Cash to the
appropriate Subcustodian, for the timely payment of such Tax in the
manner required by applicable law. If the aggregate amount of Cash in
all subaccounts of the Cash Account is not sufficient to pay such Tax,
the Custodian shall promptly notify the Client of the additional amount
of Cash (in the appropriate
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currency) required, and the Client shall directly deposit such
additional amount in the Cash Account promptly after receipt of such
notice, for use by the Custodian as specified herein. In the event that
the Client is eligible, pursuant to applicable law or to the provisions
of any tax treaty, for a reduced rate of, or exemption from, any Tax
which is otherwise required to be withheld or paid on behalf of the
Client under any applicable law, the Custodian shall, or shall instruct
the applicable Subcustodian or the withholding agent to, either withhold
or pay such Tax at such reduced rate or refrain from withholding or
paying such Tax, as appropriate; provided that the Custodian shall have
received from the Client all documentary evidence of residence or other
qualifications for such reduced rate or exemption required to be
received under such applicable law or treaty. In the event that a
reduced rate of, or exemption from, any Tax is obtainable only by means
of an application for rePortfolio, then the Custodian and the applicable
Subcustodian shall, upon request, assist the Client with such
applications. Neither the Custodian nor any Subcustodian shall have any
responsibility for the accuracy or validity of any forms or
documentation provided by the Client to the Custodian hereunder, and the
Client hereby indemnifies and agrees to hold harmless the Custodian and
each Subcustodian in respect of any liability arising from any
underwithholding or underpayment of any Tax which results from the
inaccuracy or invalidity of any such forms or other documentation.
10. Responsibilities; Indemnification by the Custodian
(a)(i) Custodian and Indemnified Subcustodians. The Custodian will use
reasonable care in the performance of its duties, exercise the same
degree of care with respect to the Securities as it would with respect
to its own securities and property and indemnify the Client and hold the
Client harmless from any loss or liability (including, without
limitation, the reasonable fees and disbursements of counsel and other
legal advisors) incurred by the Client by reason of the negligence
(whether through action or inaction) or willful misconduct of the
Custodian or any Subcustodian that is a BONY Affiliate or a Subcustodian
that is not a BONY Affiliate ("Non-affiliated Subcustodian") in respect
of which it agrees in this Agreement to indemnify for its negligence
(whether through action or inaction) or willful misconduct ("Indemnified
Non-affiliated Subcustodian") as set forth in Appendix A1, as it may be
amended from time to time.
As a condition precedent to its right to be indemnified under Section
10(a)(i), the Client shall give the Custodian notice in writing as soon
as possible with respect to the following:
Upon receipt of notice from a customer of the Client, whether written or
oral, of an intention to make a claim against the Client with respect to
the negligence (whether through action or inaction) or willful
misconduct of the BONY Affiliate Subcustodian or the Indemnified
Non-affiliated Subcustodian, or the Client becoming aware of
circumstances which may give rise to it suffering a loss or liability as
a result of such negligence or willful misconduct, the Client shall as
soon as reasonably possible after such receipt or becoming so aware,
give reasonable details of such notice or such circumstances to the
Custodian.
As soon as possible thereafter and subject to receipt by it of
sufficient information upon which to make its decision, the Client shall
decide whether or not it wishes to seek indemnify under this Section
10(a)(i) and shall notify the Custodian accordingly.
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The Client agrees that the Custodian shall have the absolute right in
its sole discretion to terminate its indemnification of an Indemnified
Non-affiliated Subcustodian and to classify it in the category of a
Non-indemnified Non-affiliated Subcustodian (as defined hereafter) at
any point during the term of the Custodian's custody of the Securities,
effective upon telephone notice. The Custodian agrees that it shall
provide immediate notice to the Client in writing of such termination of
indemnification. A claim for indemnification of an Indemnified
Non-affiliated Subcustodian shall survive such termination if: (a) the
claim for indemnification is made to the Custodian prior to the
effective time of termination of indemnification (`Indemnification
Termination') or (b) the claim for indemnification arose prior to the
Indemnification Termination and is made within 15 days from the
Indemnification Termination. The parties shall treat an Indemnified
Non-affiliated Subcustodian as a New Subcustodian (as defined hereafter)
pursuant to Section 10(a)(iii) if at any time after the execution of
this Agreement, the Client fails to maintain with the Custodian for a
period of six months any Securities held through an Indemnified
Non-affiliated Subcustodian listed in Appendix A1.
(a)(ii) Non-indemnified Non-Affiliated Subcustodians. The Custodian's
responsibility with respect to any Securities held by a Subcustodian,
other than a BONY Affiliate or an Indemnified Non-affiliated
Subcustodian, (`Non-indemnified Non-affiliated Subcustodian') or any
carrier of Securities acting for the Custodian or any Subcustodian is
limited to the failure on the part of the Custodian (or a Subcustodian
that is a BONY Affiliate or Indemnified Non-affiliated Subcustodian) to
exercise reasonable care in the selection or retention of such
Non-indemnified Non-affiliated Subcustodian or carrier and the Custodian
will hold the Client harmless from and indemnify it against any loss
that occurs as a result of the failure of the Custodian (or such BONY
Affiliate or an Indemnified Non-affiliated Subcustodian) to exercise
such reasonable care. In the event that the Client incurs any loss or
liability (including, without limitation, the reasonable fees and
disbursements of counsel and other legal advisors) directly as the
result of the negligence (whether through action or inaction) or willful
misconduct of any Subcustodian (other than a BONY Affiliate or
Indemnified Non-affiliated Subcustodian), the Custodian will pursue by
all reasonable means the enforcement of all of the rights of the Client
or the Custodian against such Subcustodian in respect thereof; provided,
however, that the Custodian will not be required to initiate legal
proceedings in a court of law. The Custodian may initiate legal
proceedings in a court of law at the Client's request and expense and
subject to any indemnification satisfactory to it.
(a)(iii) New Subcustodians. With respect to any Subcustodian who is not
listed in Appendix A1 hereto ("New Subcustodian"), in countries in which
the Client seeks to invest hereafter, the Client undertakes to provide
written notice to the Custodian promptly of any such new country to
allow the Custodian to act in timely fashion, and the Custodian, in
turn, shall promptly notify the Client if it is willing to indemnify the
Client in respect of the negligence or willful misconduct of a
Non-affiliated Subcustodian. The Custodian shall have no obligation to
provide any indemnification to the Client in respect of any New
Subcustodian and shall have absolute discretion with respect to the
terms and conditions of the indemnification, if any, in respect to any
New Subcustodian; provided, however, that to the extent the Custodian
decides to provide an indemnity in respect to a New Subcustodian such
indemnification shall be in respect to the negligence and willful
misconduct of such New Subcustodian. If, for any reason, the Client
engages in a trade in such new country and instructs the Custodian to
settle it without having
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given the Custodian prior written notice and without having received
notice from the Custodian with respect to indemnification or lack
thereof, the parties hereto shall treat any New Subcustodian for such
new country as a Non-indemnified Non-affiliated Subcustodian. In the
event the Custodian replaces an existing Subcustodian in any country
with another Subcustodian, the new Subcustodian shall also be treated as
a New Subcustodian for purposes of indemnification and the Custodian
shall notify the Client in accordance with Section 18.
(a)(iv) Securities Depositories. The Custodian shall have no
responsibility for the selection or retention of any Securities
Depository or for the performance of any Securities Depository;
provided, however, that the Custodian will pursue by all reasonable
means all of the rights of the Client or the Custodian against such
Securities Depository in respect of any loss or liability incurred by
the Client directly as a result of any negligence or willful misconduct
on the part of the Securities Depository; provided, however, that the
Custodian will not be required to initiate legal proceedings in a court
of law. The Custodian may initiate legal proceedings in a court of law
at the Client's request and expense and subject to any indemnification
satisfactory to it.
(b) Insurance. The Custodian shall, and shall require each Subcustodian
to, maintain insurance coverage with respect to the Securities covering
such risks and in such amounts as the Custodian or such Subcustodian
maintains with respect to Securities which the Custodian or such
Subcustodian holds for its own account and for the account of other
customers.
(c) Indemnification by the Custodian and Subcustodians. The Custodian
shall indemnify the Client against, and hold the Client harmless from,
any loss or liability (including, without limitation, the reasonable
fees and disbursements of counsel and other legal advisors, but
excluding all losses and liabilities of the types described in Section
11 hereof incurred by the Client by reason of the negligence (whether
through action or inaction) or willful misconduct of the Custodian or
any Subcustodian that is a BONY Affiliate in connection with the
services provided pursuant to this Agreement or the applicable
subcustodian agreement. The Custodian shall require each Subcustodian
that is not a BONY Affiliate to indemnify the Custodian and the Client
against, and hold the Custodian and the Client harmless from, any loss
or liability; (including, without limitation, the reasonable fees and
disbursements of counsel, but excluding all losses and liabilities of
the types specified in Section 11) incurred by the Custodian or the
Client by reason of the negligence (whether through action or inaction)
or willful misconduct of such Subcustodian in connection with the
services provided by such Subcustodian pursuant to the applicable
subcustodian agreement.
11. Limitations on Responsibilities and Liabilities
(a) Generally. The Custodian shall be responsible for the performance of
only those duties as are set forth herein or for those specific
operational services as set out in the Service Level Description or
contained in an Authorized Instruction that is not contrary to the
provisions of this Agreement.
(b) Consequential Damages. Under no circumstances shall the Custodian or
any Subcustodian be liable to the Client or any other person for
indirect, special or consequential
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damages, even if the Custodian or such Subcustodian is apprised of the
likelihood of such damages.
(c) Corporate Actions. The Custodian shall not be liable for any loss
occasioned by the failure of the Custodian to notify the Client of any
payment of dividends or interest or any redemption, rights offering or
other distribution made with respect to any Security or any other
corporate action taken or to be taken with respect to any Security if
the Custodian or a Subcustodian has not received notice of such
transaction directly from or on behalf of the issuer of such Security or
if such distribution or action was not included in the reports of an
internationally-recognized investment data service selected by the
Custodian as governed further in accordance with the Service Level
Description.
(d) Authorized Instructions. Neither the Custodian nor any Subcustodian
shall be liable for any action taken in accordance with an Authorized
Instruction.
(e) Payment and Delivery Instructions. In some securities markets,
securities deliveries and payments therefor may not be or are not
customarily made simultaneously. Accordingly, the Client agrees that,
notwithstanding the Client's instruction to deliver Securities against
payment or to pay for Securities against delivery, the Custodian or a
Subcustodian may make or accept payment for or delivery of Securities at
such time and in such form and manner as shall be in accordance with
relevant local law and practice or with the customs prevailing in the
relevant market among securities dealers The Client shall bear the risk
that (i) the recipient of Securities may fail to make payment, return
such Securities or hold such Securities or the proceeds of their sale in
trust for the Client and (ii) the recipient of payment for Securities
may fail to deliver the Securities (such failure to include, without
limitation, delivery of forged or stolen Securities) or to return such
payment, in each case whether such failure is total or partial or merely
a failure to perform on a timely basis. Neither the Custodian nor any
Subcustodian shall be liable to the Client for any loss resulting from
any of the foregoing events.
(f) Reversals. In some securities markets and cash clearing systems,
deliveries of securities and cash may be reversed under certain
circumstances. Accordingly, credits of Securities to a Securities
Account and Cash to the Cash Account are provisional and subject to
reversal if, in accordance with relevant local law and practice, the
delivery of the security or cash giving rise to the credit is reversed.
(g) Foreign Currency Risks. The Client shall bear all risks of investing
in Securities or holding Cash denominated in a currency other than that
of the Client's home jurisdiction. Without limiting the foregoing, the
Client shall bear the risks that rules or procedures imposed by
Securities Depositories, exchange controls, asset freezes or other laws
or regulations shall prohibit or impose burdens or costs on the transfer
to, by or for the account of the Client of Securities or Cash held
outside the Client's jurisdiction or denominated in a currency other
than the currency of the Client's home jurisdiction or the conversion of
Cash from one currency into another currency. The 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
11
<PAGE>
procedure. Neither the Custodian nor any Subcustodian shall be liable to
the Client for any loss resulting from any of the foregoing events.
(h) Force Majeure. Not withstanding any other provision contained
herein, neither the Custodian nor any Subcustodian shall be liable for
any action taken, or any failure to take any action required to be
taken, hereunder or otherwise to fulfill its obligations hereunder
(including without limitation the failure to receive or deliver
securities or the failure to receive or make any payment) in the event
and to the extent that the taking of such action or such failure arises
out of or is caused by war, insurrection, riot, civil commotion, act of
God, accident, fire, water damage, explosion, mechanical breakdown,
computer or system failure or other failure of equipment, failure or
malfunctioning of any communications media for whatever reason,
interruption (whether partial or total) of power supplies or other
utility of service, strike or other stoppage (whether partial or total)
of labor, any law, decree, regulation or order of any government or
governmental body (including any court or tribunal), or any other cause
(whether similar or dissimilar to any of the foregoing) whatsoever
beyond its reasonable control.
(i) Client's Reporting Obligations. The Client shall be solely
responsible for compliance with any notification, license or other
requirement of any jurisdiction relating to or affecting the Client's
beneficial ownership of the Securities, and neither the Custodian nor
any Subcustodian assumes liability for noncompliance with such
requirements.
(j) No Investment Advice. Neither the Custodian nor any Subcustodian or
BONY Affiliate is under any duty to provide the Client with investment
advice or to supervise its investments.
(k) Fraudulent Securities. Neither the Custodian nor any Subcustodian
shall have any liability for losses incurred by the Client or any other
person as a result of the receipt or acceptance of fraudulent, forged or
invalid Securities that Custodian or Subcustodian believes in good faith
to be proper and valid Securities (or Securities which are otherwise not
freely transferable or deliverable without encumbrance in any relevant
market).
12. Use of BONY Affiliates
(a) Executing Orders. The Custodian shall, in its sole discretion and if
permitted by applicable law, accept orders from the Client for the
purchase or sale of Securities and either execute such orders itself or
by means of BONY Affiliates or brokers or other financial organizations
selected by it using reasonable care, subject to the fees and
commissions in effect from time to time. In executing any such orders,
Custodian shall use reasonable care to obtain a reasonable price in
executing such orders. The Custodian shall not be responsible for any
act or omission, or for the solvency, of any broker or other financial
organization so selected to effect any transaction for the account of
the Client. When instructed to buy or sell Securities for which the
Custodian or a BONY Affiliate acts as a dealer, the Custodian may buy or
sell such Securities from or to either itself, as principal, or such
BONY Affiliate.
(b) Disclosure to BONY Affiliates. Notwithstanding the provisions of
Section 25 hereof, the Custodian may disclose to any BONY Affiliate
details with respect to the Securities and the
12
<PAGE>
transactions effected hereunder. Such disclosure shall be for the
purpose of identifying banking, securities and financial services that
BONY Affiliates may be able to provide to the Client.
(c) Sub-Contracting. The Client hereby agrees that the Custodian may
arrange with any BONY Affiliate to perform on behalf of the Custodian
any act required to be performed by the Custodian hereunder.
13. Fees
The Client agrees to pay the Custodian as compensation for the services
provided hereunder a fee computed at rates set forth in Appendix N to
the Service Level Description or as otherwise agreed upon from time to
time in writing by the Custodian and the Client, as well as all
assessments, charges and expenses (including, without limitation,
reasonable legal expenses and attorney's fees) reasonably incurred by
the Custodian in connection with this Agreement.
14. Liens
The Client agrees that the Custodian will not have or claim any lien or
right of retention over the Securities, or any right to sell any of
those Securities, except in relation to any unpaid sum due to the
Custodian for or in connection with services rendered under this
Agreement.
15. Indemnification by the Client
The Client agrees to indemnify the Custodian and each Subcustodian and
to hold the Custodian and each such Subcustodian harmless from any loss
or liability (including, without limitation, the reasonable fees and
disbursements of counsel and other legal advisors) incurred by the
Custodian or such Subcustodian in rendering services hereunder or in
connection with any breach of the terms of this Agreement by the Client,
except such loss or liability which results from the Custodian's or such
Subcustodian's failure to exercise the standard of care required by
Section 10(a) hereof.
16. Termination
This Agreement may be terminated by the Custodian or the Client
following receipt by the other party of not less than 60 days prior
written notice thereof; provided that such termination may be immediate
if the other party shall be in breach of its obligations hereunder or
shall become the subject of bankruptcy, insolvency, reorganization,
receivership or other similar proceedings. If notice of termination is
given by the Custodian, then the Client shall, within 60 days following
receipt of such notice, specify in an Authorized Instruction the names
of the persons to whom all Securities and Cash shall be delivered or
paid. In such case, the Custodian shall, subject to the payment of
amounts owed to it pursuant to Sections 6(b) and 13 hereof, deliver such
Securities and Cash, and instruct each Subcustodian to deliver any
Securities or Cash held by such Subcustodian, to the persons so
specified. If within 60 days following the receipt of a notice of
termination by the Custodian, the Custodian does not receive from the
Client the names of the persons to whom such Securities and Cash shall
be delivered, the Custodian, at its election, may deliver such
Securities and Cash, and instruct each Subcustodian holding any
Securities or Cash to deliver such Securities and Cash, to a bank or a
trust company doing business in the state or
13
<PAGE>
country where such Securities and Cash were held. Securities or Cash so
delivered shall be held and disposed of pursuant to the provisions of
this Agreement or an Authorized Instruction or may be continued to be
held until the names of such persons are delivered to the Custodian. If
notice of termination is given by the Client, the Custodian shall,
subject to the payment of all amounts owed to it pursuant to Sections
6(b) and 13 hereof, deliver such Securities and Cash, and instruct each
Subcustodian holding any Securities or Cash to deliver such Securities
or Cash, to the persons specified in an Authorized Instruction. The
indemnity provisions of this Agreement and the provisions limiting the
liabilities of the Custodian and Subcustodians shall survive the
termination of this Agreement.
17. Notices
Except as otherwise specified herein, any notice or other communication
to the Custodian or Client is to be addressed to the respective party as
set forth in Appendix B hereto, or in such other manner as may be
specified by the one party to the other in writing from time to time.
Unless otherwise specified herein, notices shall be effective when
received. If any Authorized Instruction is given to the Custodian
orally, then the Custodian's record of such instruction shall constitute
prima facie evidence of the contents of such instruction,
notwithstanding any conflicting written confirmation or record of such
instruction provided by the Client.
18. Amendments and Waivers
Any provision of this Agreement (including the Appendices hereto) may be
amended or waived if, but only if, such amendment or waiver is in
writing and is signed by the Client and the Custodian; provided,
however, that subject always to the terms of Section 10(a)(i), above,
(i) the Custodian may from time to time delete the name of any
Subcustodian from Appendix A1 or Securities Depository, book-entry
system or clearing system from Appendix A2, with notice pursuant to
Section 10(a)(i) but without the prior consent by the Client, and (ii)
the Custodian may from time to time add the name of any bank to Appendix
A1 or the name of any Securities Depository, book-entry system or
clearing system to Appendix A2, and shall notify the Client promptly by
electronic communication or facsimile or telex and by first class mail
of such addition.
19. Claims
Any claim arising out of or related to this Agreement must be brought no
later than three years after the later of the time at which such claim
has accrued or the time at which the party bringing the claim becomes
aware of such claim.
20. Successors and Assigns; Governing Law; Jurisdiction
This Agreement shall bind the successors and assigns of the Custodian
and the Client. Except as otherwise provided by the terms of this
Agreement, neither the Custodian nor the Client may assign any of its
rights or obligations under this Agreement without the prior written
consent of the other party. This Agreement shall be governed by and
construed in accordance with the law of the State of New York. The
Client hereby submits to the non-exclusive jurisdiction of any
14
<PAGE>
federal or state court in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement, or the
transactions contemplated hereby. The Client 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 any such
proceeding brought in such a court has been brought in an inconvenient
forum. The Client and the Custodian each hereby irrevocably waives any
and all rights to trial by jury in any legal proceeding arising out of
or relating to this Agreement.
21. Counterparts
This Agreement may be signed in any number of counterparts with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
22. Headings
The section headings used herein are for information only and shall not
affect the interpretation of any provision of this Agreement.
23. Evidence
The Custodian's books and records (whether on paper, microfilm,
microfiche, by electronic or magnetic recording, or any other
mechanically reproducible form or otherwise) shall be deemed to
constitute, in the absence of manifest error, sufficient evidence of the
facts stated therein and of any obligations of the Client to the
Custodian.
24. Reserved
25. Confidentiality
The parties hereto agree not to disclose to any other party and to keep
confidential the terms and conditions of this Agreement, any amendment
hereof, and any Exhibit, Attachment or Appendix hereto, including but
not limited to service level profiles, specifications or communication
interfaces or products, or any user manual. The Client agrees to cause
all Authorized Persons to comply with the provisions of this Section 25.
Notwithstanding the foregoing, the Client may disclose such terms and
conditions of this Agreement relating to custody services provided by
the Custodian to the Client with respect to the assets of such customer,
subject to a written agreement of non-disclosure by an actual customer
or a written notice of confidentiality from the Client to a prospective
customer. In the event that either the Client (including any Authorized
Person) or the Custodian breaches this Section 25 with respect to any
aspect of communication interfaces or products, or any user manual, the
other party shall be entitled to temporary and permanent injunctive
relief against the other party (or such Authorized Person, as the case
may be) without the necessity of proving actual damages. Notwithstanding
any other provision herein, the Custodian may disclose the Client's
name, address and securities position and other information to such
persons and to such an extent as required by law, the rules of any stock
exchange or regulatory or self-regulatory organization, or any order or
decree of any court or administrative body that is binding on the
Custodian or any Subcustodian or Securities
15
<PAGE>
Depository, or the terms of the organizational documents of the issuer
of any Security or the term of any Security itself.
26. License
The Custodian hereby grants to the Client a personal, non-transferable
and nonexclusive license to use, for its internal purposes only, the
respective number of copies of any hardware, firmware, microcode and
software set forth in Appendix D or hereafter identified by the
Custodian in writing as communication products (the "Communication
Products"), for the respective terms set forth in Appendix D and at the
respective locations set forth in Appendix D, solely in connection with
transmitting and receiving electronic communications to and from the
Custodian in connection with this Agreement. The Client hereby
acknowledges and agrees that this license is subject to the terms and
conditions set forth in Appendix E.
27. Severability
In the event any of the terms or provisions of this Agreement shall be
held to be unenforceable, the remaining terms and provisions shall be
unimpaired and the unenforceable term or provision shall be replaced by
such enforceable term or provision as comes closest to the intention
underlying the unenforceable term or provision.
28. Integration Clause
This Agreement and the Service Level Description constitute the entire
Agreement between the parties hereto and supersedes any and all prior
agreements and understandings, written or oral, relating to the matter
hereof.
- ---------------------------------------------
In Witness Whereof, the parties have caused this Agreement to be duly
executed by their respective authorized representatives as of the day
and year first above written.
<TABLE>
<CAPTION>
<S> <C>
The Bank of New York Nations Annuity Trust
By:__________________________________________________ By:__________________________________________________
Title:_______________________________________________ Title::______________________________________________
</TABLE>
16
<PAGE>
Appendix A1
Global Custody Network
<TABLE>
<CAPTION>
<S><C>
Country/Market Subcustodian(s) Country/Market Subcustodian(s)
Argentina* BankBoston, N.A. Greece National Bank of Greece SA
Australia* Commonwealth Bank of Hong Kong* The Hongkong and Shanghai Banking
Australia/National Australia Bank Corporation Limited
Limited
Austria* Creditanstalt-Bankverein Hungary Citibank Budapest Rt.
Bahrain The British Bank of the Middle East Iceland Landsbanki Islands
Bangladesh Standard Chartered Bank India The Hongkong and Shanghai Banking
Corporation Limited/Deutsche Bank AG
Belgium* Banque Bruxelles Lambert Indonesia The Hongkong and Shanghai Banking
Corporation Limited
Bermuda Bank of Bermuda Limited Ireland* Allied Irish Banks, plc
Botswana Stanbick Bank Botswana Limited Israel Bank Leumi LE - Israel B.M.
Brazil* BankBoston, N.A. Italy* Banca Commerciale Italiana/Banque
Paribas S.A.
Bulgaria ING Bank-Sofia Ivory Coast Societe Generale de Banque en Cote
d'Ivoire
Canada* Royal Bank of Canada Japan* The Bank of Tokyo-Mitsubishi Limited/
The Fuji Bank, Limited
Chile* BankBoston, N.A./Banco de Chile Jordan The British Bank of the Middle East
China* Standard Chartered Bank Kenya Stanbic Bank Kenya Limited
Colombia Cititrust Colombia S.A. Latvia Societe Generale Riga
Costa Rica Banco BCT Lebanon The British Bank of the Middle East
Croatia Privredna Banka Zagreb d.d. Lithuania Vilniaus Bankas
Cyprus Bank of Cyprus Luxembourg* Banque Internationale a Luxembourg
Czech Republic Ceskoslovenska Obchodni Banka A.S. Malaysia* Hongkong Bank Malaysia Berhad
Denmark* Den Danske Bank Mauritius The Hongkong and Shanghai Banking
Corporation Limited
EASDAQ Banque Bruxelles Lambert Mexico Banco Nacional de Mexico/Citibank
Mexico, S.A.
Ecuador Citibank, N.A. Morocco Banque Commerciale du Maroc
Egypt Citibank, N.A. Namibia Stanbic Bank Namibia Limited
Estonia Hansabank Limited Netherlands* Mees Pierson/KAS Associate NV/Bank
Labouchere NV
Euromarket Cedel Bank New Zealand* Australia and New Zealand Banking
Group Limited
Euromarket Euroclear Nigeria Stanbic Merchant Bank Nigeria Limited
Finland* Merita Bank Ltd. Norway* Den norske Bank ASA
France* Banque Paribas S.A./Credit Oman The British Bank of the Middle East
Commercial de France
Germany* Dresdner Bank AG Pakistan Standard Chartered Bank
Ghana Merchant Bank (Ghana) Limited Peru Citibank, N.A.
* Indemnified Subcustodians
17
<PAGE>
Philippines The Hongkong and Shanghai Banking Sweden Skandinaviska Enskilda Banken
Corporation Limited
Poland Bank Handlowy W. Warszawie S.A. Switzerland Union Bank of Switzerland/Bank Leu Ltd.
Portugal* Banco Comercial Portugues/Banco Taiwan The Hongkong and Shanghai Banking
Espirito Santo Corporation Limited
Romania ING Bank Bucharest Branch Thailand Siarn Commercial Bank Public Company
Limited/
Bangkok Bank Public Company Limited
Russia Vneshtorgbank (Min Fin Bonds only)/ Tunisia Banque Internationale Arabe de Tuniste
Credit Suisse First Boston Limited/
Unexim Bank
Singapore* United Overseas Bank Limited/The Turkey Osmanli Bankasi A.S. (Ottoman Bank)
Development Bank of Singapore
Limited
Slovakia Ceskoslovenska Obchodna Banka, a.s. Ukraine Bank Ukraina
Slovenia Banka Creditsanstalt D.D., Ljubljana United Kingdom The Bank of New York, N.A./First
Chicago Clearing Center
South Africa The Standard Bank of South Africa United States The Bank of New York, N.A.
Limited
South Korea* Standard Chartered Bank Uruguay BankBoston, N.A.
Spain Banco Bilbao Vizcaya Venezuela Citibank, N.A.
Sri Lanka Standard Chartered Bank Zambia Stanbic Bank Zambia Limited
Swaziland Stanbic Bank Swaziland Limited Zimbabwe Stanbic Bank Zimbabwe Limited
</TABLE>
18
<PAGE>
Appendix A2
Global Custody Network & Depositories
Country Depository1
- -------------- ----------------------------------------------------------------
Argentina Caja de Valores
CRYL
Australia Austraclear Limited
Reserve Bank Information and
Transfer System (RITS)
Austria Oesterreichische Kontrollbank AG (OeKB)
Bahrain Clearing and Settlement Department (CSU) of the Bahrain Stock
Exchange (BSE)
Bahrain Monetary Authority
Bangladesh Dhaka Stock Exchange Clearinghouse
Belgium Caisse Interprofessionelle de Depot et Virements de Titres (CIK)
Banque Nationale de Belgique (Belgian National Bank, BNB)
Bermuda None
Bolivia Not Available
Botswana None
Brazil Bolsa de Valores de Sao Paulo
(BOVESPA) Custody Service
Camara De Liquidacao e Custodia S.A., (CLC)
Central de Custodian e Liquidacao Financeira de Titulos (CETIP)
Sistema Especial de Liquidacao e Custodia (SELIC)
1 In addition to the central bank, if applicable.
19
<PAGE>
Country Depository1
- -------------- ----------------------------------------------------------------
Bulgaria Bulgarian National Bank
The Central Depository (CDAD)
Canada Bank of Canada
Canadian Depository for Securities (CDS)
Chile Deposito Central de Valores
(DECEVAL) Scheduled 12/96
China Shanghai Securities Central Clearing and Registration Corporation
Shenzhen Securities Clearing Company Limited
Colombia Deposito Central de Valores (DCV)
Deposito Centralizado de Valores (Deceval)
Croatia Sredisnja Depozitama Agencija
Ministry of Finance
National Bank of Croatia
Cyprus None
Czech Czech National Bank (CNB)
Republic Central Securities Depository (SCP)
Komercni Banka
Denmark Vaerdipapierkentralen (VP)
Ecuador Deposito Central de Valores (DECEVALE) (scheduled to be
operative in 1998)
Egypt Misr. for Clearing, Settlement and Depository (MCSD)
Estonia Estonia Central Securities Depository (ECSDL)
Finland Central Securities Depository (APK)
France SICOVAM (Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilieres)
Banque de France
Germany Deutsche Borse Clearing AG (formerly known as Deutscher
Kassenverein or DKV).
1 In addition to the central bank, if applicable.
20
<PAGE>
Country Depository1
- -------------- ----------------------------------------------------------------
Ghana Not available
Greece Apothetirion Titlon, AE (Central Securities Depository)
Bank of Greece
Hong Kong Hong Kong Securities Clearing Company Limited
Central Moneymarkets Unit
Hungary Keler
Iceland None
India Each of the 23 stock exchanges in India has a clearinghouse,
such as the BSE Clearinghouse for the Bombay Stock Exchange
and the National Securities Clearing Corporation Ltd. (NSCCL)
for the National Stock Exchange
National Securities Depository Ltd. (NSDL)
Indonesia None
Ireland CREST
CBISSO, the Central Bank of Ireland Securities Settlement Office
Isreal No Central Depository, Only 4 Centralizing banks
Italy Monte Titolo
Banca d'Italia (Bank of Italy)
Ivory Coast None
Japan Japan Securities Clearing Corporation
Japan Securities Depository Center (JASDEC)
Bank of Japan
Jordan Central Bank of Jordan
Kenya None
Korea (South) Korea Securities Depository Corporation (KSD)
1 In addition to the central bank, if applicable.
21
<PAGE>
Country Depository1
- -------------- ----------------------------------------------------------------
Latvia Latvian Central Depository (LCD)
Lebanon Midclear
Bank of Lebanon
Lithuania Central Securities Depository of Lithuania
Luxembourg None
Malaysia Malaysian Central Depository Sdn Bhd
Bank Negara
Mauritius Mauritius Stock Exchange Ltd. (SEM)
Mexico Banco de Mexico
Institutional Deposito de Valores, S.A. Ltd. (Indeval)
Morocco Maroclear (including the Centrale des Titres Scripturaus).
The Bank Al Maghrib
Namibia None
Netherlands Nederlands Centraal Instituut voor Giraal Effectenverkeer
(NECIGEF) De Nederlandsche Bank NV
New Zealand New Zealand Central Securities Depository (formerly Austraclear)
Nigeria Central Secs. Clearing System Ltd.
Norway Verdipapirsentralen or VPS (Norwegian Registry of Securities)
Oman None
Pakistan Each of the three stock exchanges has its own clearinghouse:
Karachi, Lahore and Islamabad Stock Exchange (Guarantee) Ltd.
Peru Caja de Valores y Liquidaciones ICLVS.A. (CAVALI)
Phillippines Philippine Central Depository (PCD)
1 In addition to the central bank, if applicable.
22
<PAGE>
Country Depository1
- -------------- ----------------------------------------------------------------
Poland National Depository for Securities (NDS)
National Bank of Poland (NBP)
Portugal Central De Valores Mobiliarios (CVM)
Romania National Bank of Romania
Bucharest Stock Exchange (BSE)
The Central Depository (SNCDD)
Russia Moscow Interbank Currency Exchange (MICEX)
Unexim Bank
Singapore The Central Depository (Pte.) Ltd. (CDP)
Slovakia Stredisko cennych papierov (SCP)
National Bank of Slovakia (NBS)
Slovenia Central Securities Clearing Corporation of Slovenia (KDD)
South Africa Central Depository Ltd. (CD)
Spain Servicio de Liquidacion y compensacion de
Valores (SCL)
Bank of Spain
ESPACLEAR
Sri Lanka Central Depository System (CDS)
Swaziland None
Sweden Vardipapircentralen (VPC)
Switzerland Schweizerische Effekten-Giro AG (SEGA)
Intersettle
Taiwan Taiwan Securities Central Depository Co. Ltd.
Thailand The Stock Exchange of Thailand (SET)
1 In addition to the central bank, if applicable.
23
<PAGE>
Country Depository1
- -------------- ----------------------------------------------------------------
Tunisia Societe Tunisienne Interprofessionelle pour la Compensation
et les
Depos des Valeurs Mobilieres (STICODEVAM)
Central Bank of Tunisia
Turkey Takasbank
Central Bank of Turkey (CBT)
Ukraine National Bank of Ukraine
United CGO (Central Gilts Office)
Kingdom CMO (Central Money Markets Office)
CREST
United States Depository Trust Company
Participants Trust Company
Federal Reserve Bank
Uruguay None
Venezuela Caja de Valores (CVV Venezolana)
Zambia Zambian Central Depository, part of the
Lusaka Stock Exchange
Zimbabwe None
1 In addition to the central bank, if applicable.
24
<PAGE>
Appendix B
Notices to the Custodian
The Bank of New York, Brussels Office
35 avenue des Arts
Brussels 1040, Belgium
Attention: Securities Trust and Information Services, Global Custody
Facsimile No. 322-512-4977
Telephone No. 322-508-8365
Notices to the Client
[To be provided by Client]
25
<PAGE>
Appendix C
Persons Authorized by the Client to Receive Security Procedure Materials
Authorized individuals from the following organizations:
Nations Bank, N.A.
NationsBanc Advisors, Inc.
TradeStreet Investment Associates, Inc.
Gartmore Global Partners
First Data Investor Services Group, Inc.
26
<PAGE>
Appendix D
Communication Products
<TABLE>
<CAPTION>
- ----------------------------- -------------------------------------- ----------------- ==============
Communication Product Term Number of Copies Location
(Check One) (S)
- ----------------------------- -------------------------------------- ----------------- ==============
<S> <C>
[ ] As long as this Agreement
remains in effect
[ ] One year with automatic renewal
for successive one year terms
thereafter
[ ] Fixed term until ________
- ----------------------------- -------------------------------------- ----------------- --------------
[ ] As long as this Agreement
remains in effect
[ ] One year with automatic renewal
for successive one year terms
thereafter
[ ] Fixed term until ________
- ----------------------------- -------------------------------------- ----------------- --------------
[ ] As long as this Agreement
remains in effect
[ ] One year with automatic renewal
for successive one year terms
thereafter
[ ] Fixed term until ________
- ----------------------------- -------------------------------------- ----------------- --------------
[ ] As long as this Agreement
remains in effect
[ ] One year with automatic renewal
for successive one year terms
thereafter
? Fixed term until ________
- ----------------------------- -------------------------------------- ----------------- --------------
</TABLE>
27
<PAGE>
Appendix E
Communication Products - Terms and Conditions
1. Misuse; Confidentiality; Copies
The Client shall not transfer, sublicense, rent, lease, convey, translate,
convert to another programming language, decompile, disassemble, modify or
change any Communication Product for any purpose. The Client shall not use any
Communication Product in a manner which would violate this license or infringe
the proprietary rights of the Custodian or others or violate the laws, tariffs
or regulations of any country. The Client agrees not to disclose to any party,
except for Authorized Persons from the organizations listed in Appendix C, and
to keep confidential all of the Communication Products and all information
contained in or related to the Communication Products and related documentation.
The Client may make only one copy of each licensed software Communication
Product for backup purposes in support of its authorized use of the software.
The Client shall include any applicable copyright notice on any such software
backup. The Client is permitted to use each licensed copy of any Communication
Product on only one computer or local area network at a time.
2. Compatible Products
The Client shall be responsible for obtaining and maintaining hardware, software
and other equipment and products that are compatible with the Communication
Products, as compatibility is defined by the Custodian from time to time. The
Custodian shall give the Client reasonable advance notice of any changes in such
compatibility requirements.
3. Documentation
If available, the Custodian shall give the Client one copy of a user manual and
related documentation (the "Documentation") for each licensed Communication
Product. The Documentation is intended to be used for training and informational
purposes. The Documentation describes Security Procedures that the Client must
comply with in using the Communication Products. The Client shall immediately
notify the Custodian in writing if it believes any Security Procedure has been
compromised or if any Communication Product fails to perform as described in the
Documentation.
4. Installation
At its option, the Custodian shall either install the Communication Products at
the locations specified by the Client or shall furnish the Client with
installation instructions. From time to time, at its option, the Custodian shall
either install new releases of the Communication Products or furnish the Client
with installation instructions and direct the Client to install such new
releases by itself. The Client agrees to allow the Custodian to install such new
releases or to install such new releases by itself if directed to do so by the
Custodian.
5. Returns, Repairs and Replacements
Upon the termination of this License with respect to any Communication Product,
the Client agrees to return all copies of such Communication Product and related
documentation to the Custodian. The Client agrees to pay any shipping charges
incurred in connection with the return
28
<PAGE>
of any Communication Product to the Custodian for replacement, update or upon
termination of this License with respect to such Communication Product.
Communication Products that are lost, damaged or otherwise rendered inoperable
due to the Client's negligent, reckless or intentional misuse, or due to reasons
beyond the Custodian's control, shall be repaired or replaced at the Client's
expense. Communication Product repairs shall only be performed by the Custodian
or a party authorized by the Custodian to perform such repairs.
6. Fees; Taxes
The Client agrees to pay the Custodian license fees and such other fees as the
parties hereto may agree upon in writing from time to time in connection with
obtaining the Communication Products. The Client agrees to reimburse the
Custodian for, or shall pay directly to the relevant taxing authorities, any
sales, use, value-added, excise or other taxes, other than taxes based on the
Custodian's net income, incurred by the Custodian or which may in the future be
incurred by the Custodian as a result of this License or on or measured by the
prices and other charges of the Communication Products furnished for the
Client's use, however designated, levied or based, whenever the Custodian has
paid or shall be liable to pay or collect any such tax from the Client pursuant
to applicable law, as interpreted by the departmental authorities of the taxing
unit.
7. Warranty
The Custodian warrants that, for a period of 30 days after delivery of a
Communication Product to the Client such Communication Product will perform
substantially in accordance with the then current specifications therefor as set
forth in the Documentation. If a Communication Product fails to meet the
foregoing warranty and the Client gives the Custodian written notice thereof
during the applicable warranty period, the Custodian's sole obligation shall be
to provide technical services to attempt to correct the failure, provided that
(i) the Client gives the Custodian detailed information regarding such failure
and the Custodian is able to duplicate same and (ii) the Communication Product
has not been used in an unauthorized manner or otherwise misused or abused. The
Client acknowledges that the Communication Products are complex, may not be
error free, and that all errors, if any, may not be correctable or avoidable.
Except and to the extent expressly provided above, and in lieu of all other
warranties, the Communication Products are provided above, "as is", all
warranties and representations of any kind with regard to the Communication
Products are hereby disclaimed, including any implied warranties of
merchantability or fitness for a particular purpose.
8. Infringement
The Custodian shall defend or settle, at its own expense, any cause of action or
proceeding brought against the Client which is based on a claim that the use of
a Communication Product infringes any patent, copyright, trade secret or other
proprietary right. The Custodian shall indemnify and hold the Client harmless
against any final judgment that may be awarded by a court of competent
jurisdiction against the Client as a result of the foregoing. The Custodian's
obligations hereunder are conditioned upon its receiving from the Client (i)
prompt written notice of each such claim, (ii) reasonable cooperation and
information in Client's possession and (iii) the right to control and direct the
investigation, defense and settlement of each such claim. If a claim is made
that a Communication Product infringes any patent, copyright, trade secret or
other proprietary right, the Custodian may, in the Custodian's sole discretion,
either procure for the
1 In addition to the central bank, if applicable.
29
<PAGE>
Client the right to continue using such Communication Product, modify it to make
its use noninfringing, or replace it with a noninfringing product; provided that
if none of the foregoing is reasonably available to the Custodian, the Custodian
may terminate the license granted herein and require the Client to return all
copies of the relevant Communication Product. Notwithstanding the foregoing, the
Custodian shall not be liable to the Client pursuant to this Section if a claim
is based on (i) a combination of a Communication Product with data or other
software or devices not supplied by the Custodian, (ii) modifications to a
Communication Product not made by the Custodian or (iii) use of a Communication
Product in an unauthorized manner.
Related Services
These terms and conditions and the Documentation are intended to define the
rights and obligations of the Client with respect to Communication Products used
by the Client in connection with all services (e.g., custody, Portfolios
transfers, foreign exchange etc.) offered by BONY and its affiliates to the
Client. The provisions of this Agreement and any documents relating to other
services offered by BONY and its affiliates may supplement these terms and
conditions but in the event of any inconsistency between this Agreement or such
other documents and these terms and conditions, these terms and conditions shall
prevail.
Intraday Reports
The Client acknowledges that intraday reports received by the Client by means of
any Communication Product may contain information that is subject to correction,
and that corrections of such information will routinely occur without notice to
the Client. The Client understands that intraday reports are provided for
informational purposes only and are not to be relied upon for purposes of final
reconciliations or otherwise. Neither BONY nor any affiliate or subsidiary of
BONY that provides data with respect to intraday reports makes any
representation or warranty that such reports are accurate or complete.
1 In addition to the central bank, if applicable.
30
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Appendix F
The Global Custody Agreement applies to the following Portfolios:
Nations International Value Portfolio
31
EXHIBIT 99.B9(a)
ADMINISTRATION AGREEMENT
NATIONS ANNUITY TRUST
This ADMINISTRATION AGREEMENT (the "Agreement") is made as
of February ___, 1998 by and between STEPHENS INC. ("Stephens") and
NATIONS ANNUITY TRUST, a Delaware business 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, the Trust desires to retain Stephens to render
certain administrative services for the investment portfolios of the
Trust listed on Schedule I, as such Schedule may be amended from time to
time, (individually, a "Portfolio" and collectively, the "Portfolios"),
and Stephens is willing to render such services; and
WHEREAS, the Trust is retaining, pursuant to a separate
Co-Administration Agreement, First Data Investor Services, Inc. ("First
Data") to perform certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained, it is agreed between the parties
hereto as follows:
1. Appointment. The Trust hereby appoints Stephens to act
as Administrator of the Portfolios 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 either the Trust or
Stephens, each new investment portfolio established in the future by the
Trust shall automatically become a "Portfolio" for all purposes
hereunder as if listed on Schedule I.
2. Delivery of Documents. The Trust has furnished
Stephens 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. 333-40265 and 811-08481), as
filed with the Securities and Exchange Commission (the "SEC") on
November 14, 1997, relating to the Portfolios' shares (the "Shares"):
(b) the Portfolios' most recent Prospectus(es);
and
(c) the Portfolios' most recent Statement(s) of
Additional Information.
The Trust will furnish Stephens from time to time with
copies, properly certified or authenticated, of all amendments of or
supplements to the foregoing. Furthermore, the Trust will
1
<PAGE>
provide Stephens with any other documents that Stephens may reasonably
request and will notify Stephens as soon as possible of any matter
materially affecting Stephens' performance of its services under this
Agreement.
3. Duties as Administrator. Subject to the supervision and
direction of the Board of Trustees of the Trust, Stephens, as
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 (which may be
in the offices of Stephens or a corporate affiliate);
(b) furnishing statistical and research data,
data processing services, clerical services, and internal executive and
administrative services and stationery and office supplies in connection
with the foregoing;
(c) furnishing corporate secretarial services,
including coordinating the preparation and distribution of materials for
Board of Trustees' meetings;
(d) providing the services of certain persons
who may be appointed as officers of the Trust by the Trust's Board of
Trustees;
(e) 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;
(f) 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;
(g) coordinating with the Trust and its
Distributor regarding the jurisdictions in which the Shares of the Trust
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 Portfolio as a dealer or broker shall be made or reimbursed
by the Trust or that Portfolio, respectively;
(h) preparing and filing on a timely basis
various reports, registration statements and post-effective amendments
thereto and other documents required by federal, state
2
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and other applicable laws and regulations other than those filed or
required to be filed by the Adviser, First Data, Transfer Agent or
Custodian;
(i) preparing and filing on a timely basis the
Trust's Rule 24f-2 Notice;
(j) monitoring the development and
implementation of compliance procedures for the Trust which will
include, among other matters, monitoring each Portfolio's status as a
regulated investment company under Sub-Chapter M of the Internal Revenue
Code of 1986, as amended, and compliance by each Portfolio with its
investment objective, policies, restrictions, tax matters and applicable
laws and regulations; and
(k) generally assisting in all aspects of the
Trust's operations.
In performing all services under this Agreement, Stephens
shall (a) act in conformity with the Trust's Declaration of Trust and
Bylaws; the 1940 Act, the Investment Advisers Act of 1940 and other
applicable laws, 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, (b) consult and coordinate with legal counsel
for the Trust, as necessary and appropriate, and (c) advise and report
to the Trust and its legal counsel, as necessary or appropriate, with
respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3,
Stephens may, at its own expense, enter into sub-administration
agreements with other service providers, provided that each such service
provider agrees with Stephens to comply with all relevant provisions of
the 1940 Act and applicable rules and regulations thereunder. Stephens
will provide the Trust with a copy of each sub-administration agreement
it executes relating to the Trust. Stephens will be liable for acts or
omissions of any such sub-administrators under the standards of care
provided herein under Paragraph 5.
In addition to the services specifically identified above,
Stephens shall coordinate the provision of services to the Trust by
First Data, the Transfer Agent and the Custodian.
4. Compensation. Stephens shall bear all expenses in
connection with the performance of its services under this Agreement,
except those enumerated in Paragraph 4(b) below.
(a) Stephens will from time to time employ or
associate with itself 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 who are
employed by 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 in such respect.
(b) 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
3
<PAGE>
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 (other than a
sub-administrator engaged pursuant to Paragraph 3, and except for
transmitting the fees payable to First Data pursuant to Paragraph 3(d));
or other expenses not specified in this Section 4 which may be properly
payable by the Trust and which are approved by the Trust's President or
Treasurer.
(c) For the services to be rendered, the
facilities to be furnished and the payments to be made by Stephens, as
provided for in this Agreement, Stephens shall be compensated by the
Trust in accordance with the terms set forth in the Fee Letter Agreement
dated as of _________, 1998, between the Trust, Stephens and First Data,
as the same may be amended from time to time (the "Fee Letter
Agreement") provided, however, that any amendments to the Fee Letter
Agreement shall be presented for approval or ratification by the
Trustees at the next regularly scheduled Board meeting.
(d) Stephens shall be authorized to receive, as
agent for First Data, the fees payable by the Trust to First Data
pursuant to the Fee Letter Agreement for services provided by First Data
under its Co-Administration Agreement, and shall promptly forward such
fees to First Data, provided that it shall only be required to forward
amounts actually received from the Trust and shall have no other duty to
pay the same.
5. Limitation of Liabilities; 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
gross negligence in the performance of such obligations and duties, or
by reason of its reckless disregard thereof. Any person, even though
also an officer, Trustees, partner, employee or agent of Stephens, shall
be deemed, when rendering services to the Trust or acting on any
business of the Trust (other than services or business in connection
with Stephens' duties as Administrator hereunder), to be acting solely
for the Trust and not as an officer, Director, partner, employee or
agent or one under the control or discretion of Stephens even though
paid by it.
(b) The Trust, on behalf of each Portfolio, will indemnify
Stephens against and hold it 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 Portfolio and not resulting from the willful misfeasance,
bad faith or gross negligence of Stephens in the performance of such
obligations and duties or by reason of its reckless disregard thereof.
Stephens 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 5(b) shall be satisfied
only against the assets of the Portfolio involved in the claim, demand,
action or suit and not against the assets of any other investment
portfolio of the Trust.
4
<PAGE>
6. Termination of Agreement.
(a) This Agreement shall become effective as of February
___, 1998, and shall remain in full force and effect unless terminated
pursuant to the provisions of subsection (b) of this Section 6.
(b) This Agreement may be terminated at any time without
payment of any penalty, upon 60 days' written notice, by vote of the
holders of a majority of the Board of Trustees of the Trust or by
Stephens. Stephens will cooperate with and assist the Trust, its agents
and any successor administrator or administrators in the
substitution/conversion process.
(c) Section 8 shall survive this Agreement's termination.
7. 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.
8. Confidentiality. All books, records, information and data
pertaining to the business of the Trust, its prior, present or potential
shareholders and the Adviser's customers that are exchanged or received
pursuant to the performance of Stephens' 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 its responsibilities and duties hereunder.
9. Service to Other Companies or Accounts.
The Trust acknowledges that Stephens now acts, 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 Stephens' so acting. The Trust further acknowledges that
the persons employed by Stephens to assist in the performance of
Stephens' 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 any affiliate of Stephens to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
10. Miscellaneous
(a) Any notice or other instrument authorized or required
by this Agreement to be given in writing to the Trust or Stephens 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.
5
<PAGE>
To the Trust:
Nations Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Secretary
To Stephens:
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: James E. Banks, Jr.
(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 party.
(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 and the Fee Letter Agreement constitute
the entire agreement between the parties hereto with respect to the
matters described herein.
6
<PAGE>
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: ________________________________
Name: Richard H. Blank, Jr.
Title: Vice President
NATIONS ANNUITY TRUST
By: _______________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Trustees
7
<PAGE>
SCHEDULE I
Nations Balanced Assets Portfolio
Nations Disciplined Equity Portfolio
Nations International Growth Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Marsico Focused Equities Portfolio
Nations Marsico Growth & Income Portfolio
Nations Value Portfolio
8
EXHIBIT 99.B9(b)
CO-ADMINISTRATION AGREEMENT
NATIONS ANNUITY TRUST
This CO-ADMINISTRATION AGREEMENT (the "Agreement") is made as
of February ___, 1998 by and between FIRST DATA INVESTOR SERVICES GROUP,
INC., a Massachusetts corporation ("First Data"), and NATIONS ANNUITY
TRUST, a Delaware business trust (the "Trust").
WHEREAS, the Trust is registered as an open-end, series
management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act");
WHEREAS, the Trust desires to retain First Data to render
certain fund accounting and related administrative services for the
Trust's investment portfolios listed on Schedule I (individually, a
"Portfolio" and collectively, the "Portfolios") to provide
administrative services, and First Data is willing to render such
services; and
WHEREAS, the Trust is retaining pursuant to a separate
Administration Agreement, Stephens Inc. ("Stephens") to provide certain
other administration services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and
mutual convenants herein contained, it is agreed between the parties
hereto as follows:
1. Appointment. The Trust hereby appoints First Data to act
as Co-Administrator of the Portfolios, and First Data 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 either the Trust or First
Data, each new investment portfolio established in the future by the
Trust shall automatically become a "Portfolio" for all purposes
hereunder as if listed on Schedule I.
2. Delivery of Documents. The Trust has furnished First Data
with copies properly certified or authenticated of each of the
following:
(a) the Trust Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933, as amended,
and under the 1940 Act (File Nos. 333-40265 and 811-08481; respectively)
as filed with the Securities and Exchange Commission (the "SEC") on
November 14, 1997 relating to the Portfolios' units or shares (the
"Shares");
(b) the Portfolios' most recent Prospectus(es); and
(c) the Portfolios' most recent Statement(s) of
Additional Information.
The Trust will furnish First Data from time to time with
copies, properly certified or authenticated, of all amendments of or
supplements to the foregoing. Furthermore, the Trust will
1
<PAGE>
provide First Data with any other documents that First Data may
reasonably request and will notify First Data as soon as possible of any
matter materially affecting First Data'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, First Data, 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). First Data 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) Providing the services of certain persons who
may be appointed as Treasurer or Assistant Treasurer of the Trust by the
Trust's Board of Trustees;
(c) Valuing each Portfolios' assets and calculating
the net asset value and the net income of the shares of each Portfolio
in accordance with the Trust's current Prospectus(es) and resolutions of
the Trust's Board of Trustees, provided, that in performing such
services, First Data shall obtain security market quotes from
independent pricing services, or if such quotes are unavailable, obtain
such prices from the Adviser;
(d) 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;
(e) Preparing and filing on a timely basis the
Trust's tax returns and other tax filings;
(f) On the basis of information provided by the
Trust's investment adviser to First Data, performing monthly compliance
testing with regard to the items specified on Annex A, attached hereto
and incorporated herein;
(g) Preparing and furnishing the Trust with monthly
broker security transactions summaries and monthly security transaction
listings and (at the Trust's request) with 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: and
(h) Assisting the Trust and its agents in their
accumulation and preparation of materials for Board of Trustees meetings
and for regulatory examinations and inspections of the
2
<PAGE>
Trust, however only to the extent such materials relate to the services
being performed for the Trust by First Data.
In performing all services under this Agreement, First Data
shall (a) act in conformity with the Trust's Declaration of Trust and
By-Laws; the 1940 Act, the Investment Advisers Act of 1940 and other
applicable laws, 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, (b) consult and coordinate with legal counsel
for the Trust, as necessary and appropriate, and (c) advise and report
to the Trust and its legal counsel, as necessary or appropriate, with
respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3, First
Data may, at its own expense, enter into sub co-administration
agreements with other service providers, provided that each such service
provider agrees with First Data to comply with all relevant provisions
of the 1940 Act and applicable rules and regulations thereunder. First
Data will provide the Trust with a copy of each sub co-administration
agreement it executes relating to the Trust. First Data will be liable
for acts or omissions of any such sub co-administrators under the
standards of care provided herein under Paragraph 5.
In performing its services under this Agreement, First Data
shall cooperate and coordinate with Stephens as necessary and
appropriate and shall provide such information as is reasonably
necessary or appropriate for Stephens to perform its responsibilities to
the Trust.
4. Compensation. First Data shall bear all expenses in
connection with the performance of its services under this Agreement,
except those enumerated in 4(b) below.
(a) First Data will from time to time employ or
associate with itself such person or persons as First Data may believe
to be particularly suited to assist it in performing services under this
Agreement. Such person or persons may be officers and employees who are
employed by both First Data and the Trust. The compensation of such
person or persons shall be paid by First Data and no obligation shall be
incurred on behalf of the Trust in such respect.
(b) First Data 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
First Data; outside auditing expenses; outside legal expenses; fees of
independent pricing services utilized by First Data to value each
Portfolio's assets; or other expenses not specified in this Section 4
which may be properly payable by the Trust and which are approved by the
Trust's President or Treasurer.
(c) For the services to be rendered, and expenses
assumed by (i) First Data under this Agreement and (ii) Stephens under
the Administration Agreements with the Trust, the Trust will pay to
Stephens, for its services and as agent for First Data, a monthly fee in
accordance with the terms set forth in the Fee Letter Agreement dated as
of __________, 1998,
3
<PAGE>
among the Trust, First Data and Stephens as the same may be amended from
time to time (the "Fee Letter Agreement") provided, however, that any
amendments to the Fee Letter Agreement shall be presented for approval
or ratification by the Trustees at the next regularity scheduled Board
meeting.
(d) The Trust will compensate First Data for its
services rendered pursuant to this Agreement in accordance with the fees
set forth above. Such fees do not include out-of-pocket disbursements by
First Data for services that are not specifically identified in
Paragraph 3 above. Such out-of-pocket disbursements may include, but are
not limited to, costs associated with postage (including overnight
services), telephone, telecommunications (including facsimiles),
duplicating, pricing services and forms of supplies. First Data shall
not be obligated to incur any out-of-pocket disbursements for services
that are not specifically identified in Paragraph 3 above, unless
reasonably satisfactory arrangements for the payment of such expenses
are agreed to by the Trust and First Data, prior to such expenses being
incurred.
5. Limitation of Liability; Indemnification.
(a) First Data 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 First Data's willful
misfeasance, bad faith or gross negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
Any person, even though also an officer, Trustee, partner, employee or
agent of First Data, shall be deemed, when rendering services to the
Trust or acting on any business of the Trust (other than services or
business in connection with First Data' duties as Co-Administrator
hereunder), to be acting solely for the Trust and not as an officer,
Director, partner, employee or agent or one under the control or
discretion of First Data even though paid by it.
(b) The Trust, on behalf of each Portfolio, will
indemnify First Data against and hold it 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 Portfolios and not resulting from the
willful misfeasance, bad faith or gross negligence of First Data in the
performance of such obligations and duties or by reason of its reckless
disregard thereof. First Data 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 5(b) shall be
satisfied only against the assets of the Portfolio involved in the
claim, demand, action or suit and not against the assets of any other
investment portfolio of the Trust.
6. Termination of Agreement.
(a) This Agreement shall become effective February
___, 1998 and shall remain in full force and effect unless terminated
pursuant to the Provisions of subsection (b) of this Section 6.
4
<PAGE>
(b) This Agreement may be terminated at any time
without payment of any penalty, upon 60 days' written notice, by vote of
the holders of a majority of the Board of Trustees of the Trust or by
First Data. First Data will cooperate with and assist the Trust, its
agents and any successor administrator or administrators in the
substitution/conversion process.
(c) Section 8 shall survive this Agreement's
termination.
7. 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.
8. Confidentiality. All books, records, information and data
pertaining to the business of the Trust, its prior, present or potential
shareholders and the Adviser's customers that are exchanged or received
pursuant to the performance of First Data'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 its responsibilities and duties hereunder.
9. Service to Other Companies or Accounts. The Trust
acknowledges that First Data now acts, 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 First Data's so acting. The
Trust further acknowledges that the persons employed by First Data to
assist in the performance of First Data'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 First
Data or any affiliate of First Data to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature.
10. Miscellaneous.
(a) Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Trust or First
Data 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 Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Secretary
To First Data:
First Data Investor Services Group, Inc.
One Exchange Place
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<PAGE>
53 State Street
Boston, MA 02109
Attention: Richard H. Rose
(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 party.
(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 and the Fee Letter Agreement
constitute the entire agreement between the parties hereto with respect
to the matters described herein.
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.
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
-----------------------------
Name: Richard H. Rose
Title: Senior Vice President
NATIONS ANNUITY TRUST
By: ___________________________
Name: A. Max Walker
Title: President and Chairman of the Board
of Trustees
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<PAGE>
ANNEX A
First Data shall perform the following compliance tests on a
monthly basis (based only on information received from the Trust's
investment adviser, the accuracy of which will not be independently
verified by First Data):
1. The following tests derived from Sub-Chapter M of the
Internal Revenue Code of 1986, as amended:
(a) 90% gross income test;
(b) 30% short-three test; and
(c) asset diversification test.
2. The following tests derived from the 1940 Act:
(a) Asset diversification tests for both money market
funds and non-money market funds.
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EXHIBIT 99.B9(b)
SCHEDULE I
Nations Balanced Assets Portfolio
Nations Disciplined Equity Portfolio
Nations International Growth Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Marsico Focused Equities Portfolio
Nations Marsico Growth & Income Portfolio
Nations Value Portfolio
8
EXHIBIT 99.B9(c)
SUB-ADMINISTRATION AGREEMENT
NATIONS ANNUITY TRUST
This SUB-ADMINISTRATION AGREEMENT (the "Agreement") is
made as of February __, 1998 by and between STEPHENS INC. ("Stephens")
and NationsBanc Advisors, Inc. ("NBAI").
WHEREAS, Stephens serves as the administrator of Nations
Annuity Trust (the "Trust") pursuant to a separate Administration
Agreement;
WHEREAS, the Trust has retained, pursuant to a
Co-Administration Agreement, First Data Investors Services Group, Inc.
("First Data") to perform certain administrative services for the Trust;
and
WHEREAS, Stephens desires to retain NBAI to render certain
sub-administrative services to Stephens, as administrator of the Trust,
and NBAI is willing to render such services.
WITNESSETH:
NOW, THEREFORE, in consideration of the promises and
mutual covenants herein contained, it is agreed between the parties
hereto as follows:
1. Appointment. Stephens hereby appoints NBAI to act as
sub-administrator of the Trust and NBAI hereby accepts such appointment
and agrees to render such services and duties set forth in Paragraph 2,
for the compensation and on the terms herein provided. Absent written
notification to the contrary by either Stephens or NBAI, each new
investment portfolio established in the future by the Trust shall
automatically be covered by this Agreement.
2. Duties as sub-administrator. Subject to the supervision
and direction of Stephens, NBAI, as sub-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) coordinating the preparation and printing of
prospectuses and prospectus supplements;
(b) coordinating the solicitation of shareholder
proxies, including the mailing of proxy materials and the hiring of
proxy solicitors;
(c) coordinating the holding of shareholder
meetings;
(d) coordinating the holding of Board of
Trustees meetings;
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(e) monitoring, on a daily basis, the compliance
of each investment portfolio of the Trust with its investment objective,
policies, restrictions, tax matters and applicable laws and regulations;
(f) coordinating the mailing of reports and
other correspondence to shareholders of record of the Trust;
(g) maintaining a secondary facility for the
retention of records required to be kept by the Trust;
(h) maintaining a compliance manual, and
overseeing compliance with, all compliance procedures adopted by the
Trust;
(i) coordinating the preparation and printing of
reports to shareholders of the Portfolios and the Securities and
Exchange Commission (the "SEC"), including, but not necessarily limited
to, Annual Reports and Semi-Annual Reports to Shareholders and on Form
N-SAR;
(j) coordinating annual and semi-annual audits
of the Trust; and
(k) reviewing and evaluating the services provided
to the Trust by service providers.
In performing all services under this Agreement, NBAI
shall (a) act in conformity with the Trust Declaration of Trust and
By-Laws, as applicable, the Investment Company Act of 1940 (the "1940
Act"), the Investment Advisers Act of 1940 and other applicable laws, 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; (b) consult and coordinate with legal counsel for the Trust, as
necessary and appropriate; and (c) advise and report to the Trust and
its legal counsel, as necessary or appropriate, with respect to any
compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 2, NBAI
may, at its own expense, enter into service agreements with other
service providers, provided that each such service provider agrees with
NBAI to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. NBAI will provide Stephens
with a copy of each service agreement it executes relating to the Trust.
NBAI will be liable for acts or omissions of any such service provider
under the standards of care provided herein under Paragraph 4.
3. Compensation. NBAI shall bear all expenses in
connection with the performance of its services under this Agreement,
except those enumerated in Paragraph 3(b) below.
(a) NBAI will from time to time employ or associate
with itself such person or persons as NBAI may believe to be
particularly suited to assist it in performing services under
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<PAGE>
this Agreement. Such person or persons may be officers and employees who
are employed by NBAI. The compensation of such person or persons shall
be paid by NBAI and no obligation shall be incurred on behalf of the
Trust in such respect.
(b) NBAI 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
NBAI; outside auditing expenses; outside legal expenses; fees of any
other service provider to the Trust (other than a sub-administrator
engaged pursuant to Paragraph 2); or other expenses not specified in
this Section 3 which may be properly payable by the Trust and which are
approved by the President or Treasurer of the Trust.
(c) For the services to be rendered, the
facilities to be furnished and the compensation and other expenses to be
borne by NBAI, as provided for in this Agreement, NBAI shall be entitled
to receive a monthly fee from Stephens based on an annual rate of .01%
of the Trust's average daily net assets.
4. Limitation of Liabilities; Indemnification.
(a) NBAI shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stephens in connection with
the performance of its obligations and duties under this Agreement,
except a loss resulting from NBAI's willful misfeasance, bad faith or
gross negligence in the performance of such obligations and duties, or
by reason of its reckless disregard thereof. Any person, even though
also an officer, Trustee, partner, employee or agent of NBAI, shall be
deemed, when rendering services to Stephens or acting on any business of
NBAI (other than services or business in connection with NBAI's duties
as sub-administrator hereunder), to be acting solely for Stephens and
not as an officer, Trustee, partner, employee or agent or one under the
control or discretion of NBAI even though paid by it.
(b) Stephens will indemnify NBAI against and hold it
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 Trust and not
resulting from the willful misfeasance, bad faith or gross negligence of
NBAI in the performance of such obligations and duties or by reason of
its reckless disregard thereof. NBAI will not confess any claim or
settle or make any compromise in any instance in which Stephens will be
asked to provide indemnification, except with Stephens' prior written
consent. Any amounts payable by Stephens under this Section 4(b) shall
be satisfied only against the assets of Stephens and not against the
assets of the Trust.
5. 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 5 (b).
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(b) This Agreement may be terminated at any time without
payment of any penalty, upon 60 days' written notice, by Stephens or by
NBAI. NBAI will cooperate with and assist Stephens, its agents and any
successor sub-administrator or sub-administrators in the
substitution/conversion process.
(c) Section 7 shall survive this Agreement's termination.
6. 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.
7. Confidentiality. All books, records, information and data
pertaining to the business of the Trust, its prior, present or potential
shareholders and the Adviser's customers that are exchanged or received
pursuant to the performance of NBAI'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 its
responsibilities and duties hereunder.
8. Service to Other Companies or Accounts.
Stephens acknowledges that NBAI now acts, will continue to
act and may act in the future as investment adviser to fiduciary and
other managed accounts, and as investment adviser, sub-investment
adviser and/or administrator to other investment companies or series of
investment companies, and Stephens has no objection to NBAI so acting.
Stephens further acknowledges that the persons employed by NBAI to
assist in the performance of NBAI'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 NBAI or any
affiliate of NBAI to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
9. Miscellaneous
(a) Any notice or other instrument authorized or required
by this Agreement to be given in writing to Stephens or NBAI 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 Stephens:
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank, Jr.
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<PAGE>
To NBAI:
NationsBanc Advisors, Inc.
One NationsBank
101 South Tryon Street
Charlotte, NC 28255-0001
Attention: Mark H. Williamson
(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 party.
(c) This Agreement shall be construed in accordance with
the laws of the State of Arkansas.
(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 provision by NBAI of
sub-administrative services and the receipt of fees therefor, and
supersedes all prior arrangements or understandings with respect to the
provision by NBAI of sub-administrative services and the receipt of fees
therefor, written and oral.
5
<PAGE>
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: _____________________________
Name: Richard H. Blank, Jr.
Title: Vice President
NATIONSBANC ADVISORS, INC.
By: ____________________________
Name: Mark H. Williamson
Title: President
Approved: December 9, 1997
6
EXHIBIT 99.B9(d)
TRANSFER AGENCY AND SERVICES AGREEMENT
(With Facilities Management Arrangement)
THIS AGREEMENT, dated as of this ______ day of February, 1998
between NATIONS ANNUITY TRUST, a Delaware business trust (the "Trust),
and each other investment company which may become a party hereto
pursuant to the terms of this Agreement, 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 FIRST DATA INVESTOR SERVICES, INC. (the "Transfer Agent"), a
Massachusetts corporation with principal offices at One Exchange Place,
53 State Street, Boston, Massachusetts 02109.
WITNESSETH
WHEREAS, the Trust 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, the Trust 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, the Trust and each Portfolio of the Trust 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.
("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 Trust in Charlotte,
North Carolina (the "Charlotte Facility").
NOW THEREFORE, in consideration of the mutual covenants and
promises hereinafter set forth, the Trust and the Transfer Agent agree
as follows:
Definitions
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following
meanings:
(a) "Declaration of Trust" shall mean the Declaration
of Trust, or other similar organizational document as the case
may be, of the Trust as the same may be amended from time to
time.
(b) "Authorized Person" of a Portfolio shall be deemed
to include (i) any authorized officer of the Trust; (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 Trust, duly authorized to give Oral
Instructions or Written Instructions on behalf of the Trust as
indicated in writing to the Transfer Agent from time to time.
<PAGE>
(c) "Board of Trustees" of the Trust shall mean the
Board of Trustees of the Trust, as the case may be.
(d) "Commission" shall mean the Securities and
Exchange Commission.
(e) "Custodian" of a Portfolio refers to any custodian
or subcustodian of securities and other property which the
Trust 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 Trust 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 the Trust shall mean collectively
the most recently dated Portfolio Prospectuses and Statements
of Additional Information, including any supplements thereto,
if any, with respect to each Portfolio of the Trust which has
become effective under the Securities Act of 1933 and the 1940
Act.
(j) "Shares" of a Portfolio refers collectively to
such shares of capital stock or beneficial interest, as the
case may be, or class thereof, of the Portfolio 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.
Appointment of the Transfer Agent
2.1 The Trust hereby appoints and constitutes the Transfer Agent as
transfer agent and dividend disbursing agent for Shares of the Trust and
the Transfer Agent hereby accepts such appointments and agrees to
perform the duties hereinafter set forth.
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Duites 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 redernption 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 the Trust's
Prospectus, applicable law and the procedures established from
time to time between the Transfer Agent and the Trust.
(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 the Trust, and issued and outstanding. The Transfer
Agent shall provide the Trust 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 Trust.
(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 Trustees, 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, the Trust 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 Trust or its designated agent. The responsibility
of the Transfer Agent for a Trust's blue sky State registration is
solely limited to the initial establishment of shares or share
transactions subject to blue sky compliance by the Trust and the
reporting of such transactions to the Trust as provided above.
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
Trust 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"):
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(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 Trust 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 thc Transfer Agent pursuant
to Article 8 hereof.
4.2 With respect to matters described in Section 4.1 above, the
decision of the Trust's 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 Thc 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
Trusts and the Transfer Agent.
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 Trust 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 Trust shall have the
right to terminate this Agreement on thirty (30) days notice.
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5.5 Notwithstanding the foregoing, the Trust 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 Trust's representative on the Joint
Operations Board with respect to a commercially reasonable Portfolioing
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 Trust. 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 Portfolio and will be preserved, maintained and made available
in accordance with such section, and will be surrendered promptly to
such Portfolio on and in accordance with the Trust's request.
6.3 In case of any requests or demands for the inspection of
Shareholder records of a Portfolio, the Transfer Agent will endeavor to
notify the Trust 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 Trust, 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 Portfolio, 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 Trust,
or any person retained by the Trust as may be necessary for the Trust to
evaluate the quality of the Services performed by the Transfer Agent
pursuant hereto.
Article 7 Portfolio Instructions
7.1 The Transfer Agent will have no liability when acting for
the Trust in accordance with Written or Oral Instructions believed to
have been executed or orally communicated by an Authorized Person of the
Trust 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
Trust. The Transfer Agent will also have no liability when processing
Share certificates for the Trust which it reasonably believes to bear
the proper manual or facsimile signatures of the officers of the Trust
and the proper countersignature of the Transfer Agent.
7.2 The Transfer Agent may request Written Instructions from
the Trust and may seek advice from legal counsel for the Trust with
prior notice to the Trust, 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 Trust or for the Transfer Agent.
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Written Instructions requested by the Transfer Agent will be provided by
the Trust 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 Portfolio by any person representing or acting on
behalf of the Trust only if said representative is an Authorized Person
of the Trust. The Trust agrees that all Oral Instructions shall be
followed within one business day by confirming Written Instructions, and
that the Trust's failure to so confirm shall not impair in any respect
the Transfer Agent's right to rely on Oral Instructions.
Article 8 Compensation
8.1 The Trust shall reimburse the Transfer Agent for all of 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 Trust 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).
8.3 In addition to the Costs and Margin described above, the
Trust 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 Trust agrees to pay all fees and out-of-pocket expenses
within thirty (30) days following the receipt of the respective invoice.
The Trust 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,
the Trust 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 Trust Documents annexed hereto as Schedule F.
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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 Trust herein (the "Transfer Agent System").
10.2 The Transfer Agent hereby grants to the Trust 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 Trust 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 Trust desires 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 Trust requests an enhancement to the
Transfer Agent System which is estimated to require 5,000 programming
hours or more ("Enhancement Project") and the Trust agrees to assume the
cost of such Enhancement Project, the Trust 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.
10.6 The Trust 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 the Trust
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;
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(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 Trust
12.1 The Trust 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 Declaration of Trust and By-Laws to enter into this
Agreement;
(c) All corporate proceedings required by said
Declaration of Trust, 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 Trust 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 Trust's Declaration
of Trust and its Prospectus, such Shares shall be validly
issued, fully paid and non-assessable.
Article 13 Indemnification
13.1 The Transfer Agent shall not be responsible for and the
Trust 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 Trust 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 Trust, or any authorized third party
acting on behalf of the Trust, including but not limited to the
prior transfer agent for the Trust, 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 Trust which are deemed to be provided by an
Authorized Person of the Trust.
8
<PAGE>
(d) The offer or sales of Shares by the Trust 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 Trust's refusal or failure to comply with the
terms of this Agreement, or any Claim which arises out of the
Trust's negligence or misconduct or the breach of any
representation or warranty of the Trust made herein.
13.2 In any case in which a Trust may be asked to indemnify or
hold the Transfer Agent harmless, the Transfer Agent will notify the
Trust promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification
against the Trust although the failure to do so shall not prevent
recovery by the Transfer Agent, unless the Trust is actually prejudiced
thereby, and the Transfer Agent shall keep the Trust advised with
respect to all developments concerning such situation. The Trust 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 Trust
so elects, such defense shall be conducted by counsel chosen by the
Trust and satisfactory to the Transfer Agent, and thereupon the Trust
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 any case in which the Trust will be asked to provide
indemnification, except with the Trust'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
Trust 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 Trust 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 the
Trust 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.
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<PAGE>
16.2 The Trust 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 Board of Trustees of the Trust, the Trust may terminate this
Agreement at the end of the thirty-sixth (36th) or forty-eighth (48th)
month of the Initial Term.
16.4 The Trust 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 Trust
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.
16.5 In the event that the total number of combined Shareholder
accounts for the Trust and any other open-end investment companies
affiliated with the Trust 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 Trust 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 Trust
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
Trust. 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
10
<PAGE>
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
Trust pursuant to Sections 16.3 or 16.5:
(a) Prior to the effective date of the termination,
the Trust 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 Trust 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.
(c) Prior to the effective date of the terminaton, the
Trust shall pay the Transfer Agent an amount equal to 80% of
the cumulative Margin (as defined in Section 8.1) paid by the
Trust to the Transfer Agent for the twelve months preceding the
notice of termination, unless the Trust's 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 Trust 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 Trust, the
transfer of such employees to another entity providing services
to the Trust. 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 Trust all
physical assets located at the Charlotte Facility.
Article 17 Additional Portfolios
17.1 In the event that the Trust establishes one or more
Portfolios in addition to those identified initially on Schedule G, with
respect to which the Trust desires to have the Transfer Agent render
services as transfer agent under the terms hereof, the Trust 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 Portfolio") 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 Portfolio pursuant to which such New Portfolio
agrees to be bound by the terms of this Agreement (an "Adoption
Agreement"). Following the execution of an Adoption Agreement by a New
Portfolio, such New Portfolio shall be deemed a Portfolio for all
11
<PAGE>
purposes of this Agreement and shall have all the rights, obligations
and duties of a Portfolio 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 Trust 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, sales estimates, business plans,
and internal performance results relating to
the past, present or future business
activities of the Transfer Agent or the
Trust, 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 Trust 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 agents 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
Confidentiality Agreement;
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<PAGE>
(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.
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 Trust 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.
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<PAGE>
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 thc Transfer Agent or the Trust of responsibility for
exercising all backup and contingency plans available and in effect at
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 The Trust agrees that the Transfer Agent, in its
discretion, may after notification to the Trust, 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
administrated 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
14
<PAGE>
at its office set forth below or at such other place as such party may
from time to time designate in writing.
To the Trust:
Nations Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Corporate Secretary
To the Transfer Agent:
First Data Investor Services Group, Inc.
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.
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<PAGE>
Article 28 Use of Transfer Agent/Portfolio Name
28.1 The Trust 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 Trust 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.
28.2 The Transfer Agent shall not use the name of a Portfolio
or material relating to a Portfolio on any documents or forms for other
than internal use in a manner not approved prior thereto in writing by
such Portfolio; provided, that the Trust 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 Trust 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 the Trust
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) the Trust individually shall have the rights and obligations of a
Portfolio as set forth in this Agreement, (ii) any action by a Portfolio
in violation of this Agreement shall not affect the rights and
obligations of any other Portfolio 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 ANNUITY TRUST
By:
----------------------------
Name: Richard H. Blank, Jr.
Title: Secretary
16
<PAGE>
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
----------------------------------
Name: Jack P. Kutz
Title: Executive Vice President
and Chief Operating Officer
17
<PAGE>
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 inquires 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 Trust.
3. Share Certificates.
(a) At the expense of the appropriate Portfolio, the
Trust shall supply the Transfer Agent with an adequate supply of blank
share certificates to meet the Transfer Agent's requirements therefor.
Such Share certificates shall be properly signed by facsimile. The Trust
agrees that, notwithstanding the death, resignation, or removal of any
officer of the Trust 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 Portfolio 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 Trust, all
reports to Shareholders, dividend and distribution notices and proxy
material for the Trust's 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.
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5. Sales of Shares
(a) The Transfer Agent shall not be required to issue
any Shares of a Portfolio where it has received a Written Instruction
from the Trust or official notice from any appropriate authority that
the sale of the Shares of the Trust 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 Trust 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 Trust's 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 judgement, 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 Portfolio 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 Trust 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 Trust.
(f) The Transfer Agent shall not process or effect any
repurchase with respect to Shares of the Trust after receipt by the
Transfer Agent or its agent of notification of the suspension of the
determination of the net asset value of the Trust.
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7. Dividends
(a) Upon the declaration of each dividend and each
capital gains distribution by the Board of Trustees of the Trust with
respect to Shares of the Trust, the Trust 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 Trustees, the Trust 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 Trust to make total dividend
and/or distribution payments to all Shareholders of the Trust as of the
record date, the Transfer Agent will, upon notifying the Trust, 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
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Schedule B
Quality Standards
(Effective October 2, 1995 as updated on September 25, 1995)
For all Portfolios, open-end and closed-end, serviced by the Transfer
Agent, 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%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Performance Standards
- --------------------------------------------------------------------------------------
Telephone Performance Standards
- --------------------------------------------------------------------------------------
<S> <C>
Average speed of answer 20 seconds or less
- ----------------------------------------------------------- --------------------------
Calls abandoned 2% of calls that wait 20 seconds or more
- --------------------------------------------------------------------------------------
Service level* 80%
- ----------------------------------------------------------- --------------------------
</TABLE>
*Represents the percentage of calls answered within 20 seconds.
<PAGE>
Schedule B
[List: of Initial Quality Standards based on
1994 quarterly senior management reports]
Nations Funds
Financial Transactions
Subscriptions 98%
Redemptions 98%
Exchanges 98%
Non-Financials
Maintenances 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%
Maintenances 98%
Transfers 98%
New Accounts 98%
% = minimum acceptable levels
Capitol Mutual Funds
Financials
Subscriptions 98%
Redemptions 98%
Exchanges 98%
Non-Financials
Maintenance 98%
Transfers 98%
New Accounts 98%
% = minimum acceptable levels
<PAGE>
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
Trust.
2. The Trust shall have the right to audit, at its 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 Trust has 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.
<PAGE>
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 Trust
<PAGE>
Schedule E
OUT-OF-POCKET EXPENSES
The Trust 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 Trusts
- 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 tabulatons
- 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 Trusts
- Temporary staff, as approved by the Trusts
- Travel and entertainment, as approved by the Trusts
- 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 Trust agrees 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 Trust will promptly reimburse the Transfer Agent for any
other unscheduled expenses incurred by the Transfer Agent whenever the
Trust and the Transfer Agent mutually agree that such expenses are not
otherwise properly borne by the Transfer Agent as part of its duties and
obligations under the Agreement.
<PAGE>
Schedule F
Trust Documents
- Certified copy of the Declaration of Trust of the Trust,
as amended.
- Certified copy of the By-laws of the Trust, as amended.
- Copy of the resolution of the Board of Trustees
authorizing the execution and delivery of this Agreement.
- Specimens of the certificates for Shares of the Trust, if
applicable, in the form approved by the Board of Trustees
of the Trust, with a certificate of the Secretary of the
Trust 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 Trust.
- Certified list of Shareholders of the Trust with the
name, address and taxpayer identification number of each
Shareholder, and the number of Shares of the Trust 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 Trust.
- All notices issued by the Trust with respect to the
Shares in accordance with and pursuant to the Declaration
of Trust or By-laws of the Trust or as required by law
and shall perform such other specific duties as are set
forth in the Declaration of Trust including the giving of
notice of any special or annual meetings of shareholders
and any other notices required thereby.
Nations Annuity Trust
February 20, 1998
Page Two
EXHIBIT 99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
February 20, 1998
Nations Annuity Trust
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Beneficial Interest of Nations Annuity Trust
Ladies and Gentlemen:
We refer to Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (SEC File Nos. 333-40265; 811-08481) (the "Registration Statement")
of Nations Annuity Trust (the "Trust") relating to the registration of an
indefinite number of Shares of Beneficial Interest of the Trust's eight
portfolios; namely, Nations Balanced Assets Portfolio, Nations Disciplined
Equity Portfolio, Nations International Growth Portfolio, Nations Managed Index
Portfolio, Nations Managed SmallCap Index Portfolio, Nations Marsico Focused
Equities Portfolio, Nations Marsico Growth & Income Portfolio and Nations Value
Portfolio (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as Exhibit
10 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 Portfolios. 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 Trust's dividend reinvestment plan in
accordance with the description
<PAGE>
Nations Annuity trust
February 20, 1998
Page Two
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 hereby consent to the use of our name and to the
reference to our Firm under the heading "Counsel" in the Statement of Additional
Information and the description of advice rendered by our Firm under the heading
"How The Portfolios Are Managed" in the Prospectus, which is included as part of
the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
EXHIBIT 99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1998, relating to the statements of assets and liabilities of
Nations Annuity Trust, which appears in such Statement of Additional
Information. We also consent to the reference to us under the heading "Other
Service Providers" in the Prospectus and under the heading "Independent
Accountant and Reports" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 19, 1998
EXHIBIT 99.B13
STEPHENS INC.
February 4, 1998
Nations Annuity Trust
111 Center Street
Little Rock, AR 72201
Gentlemen:
With respect to our purchase from you of $100,000 in shares of
beneficial interest in Nations Annuity Trust (the "Trust"), consisting of
$10,000 in shares of Nations Value Portfolio, $10,000 in shares of Nations
International Growth Portfolio, $10,000 in shares of Nations Disciplined Equity
Portfolio, $10,000 in shares of Nations Marsico Focused Equities Portfolios,
$10,000 in shares of Nations Marsico Growth & Income Portfolio, $10,000 in
shares of Nations Balanced Assets Portfolio, $20,000 in shares of Nations
Managed Index Portfolio and $20,000 in shares of Nations Managed SmallCap Index
Portfolio, we hereby advise you that we are purchasing such shares with no
intention to dispose of such shares either through resale to others or
redemption by the Trust.
Very truly yours,
STEPHENS INC.
By: /s/ Richard H. Blank, Jr.
----------------------------
Richard H. Blank, Jr.
Senior Vice President
EXHIBIT 99.B15
NATIONS ANNUITY TRUST
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan (the "Plan") has
been adopted by the Board of Trustees of Nations Annuity Trust (the "Trust") in
conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act").
Section 1. Payments for Services. Under the terms of this Plan,
the Trust may act as a distributor of the Shares of which a Portfolio is the
issuer, pursuant to Rule 12b-1 under the 1940 Act. The Trust may incur as a
distributor of the shares of each Portfolio ("Shares") expenses of up to
twenty-five one-hundredths of one percent (0.25%) per annum of the average daily
net assets of the Trust attributable to the Shares of the Portfolios (as defined
on Exhibit A).
Section 2. Expenses Covered by the Plan. Amounts set forth in
Section 1 may be expended when and if authorized in advance by the Trust's Board
of Trustees. Such amounts may be used to finance any activity which is primarily
intended to result in the sale of the Shares, including, but not limited to,
expenses of organizing and conducting sales seminars, printing of prospectuses
and statements of additional information (and supplements thereto) and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature, supplemental payments to the Trust's
distributor (the "Distributor") and the cost of administering this Plan, as well
as the shareholder servicing activities described below. All amounts expended
pursuant to this Plan shall be paid:
(i) to the Distributor for reimbursements of distribution-related
expenses actually incurred by the Distributor, including, but not limited
to, expenses of organizing and conducting sales seminars, printing of
prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature and costs of
administering this Plan; or
(ii) to certain broker/dealers and other financial institutions
("Agents") who offer shares to their customers and who have entered into (A)
Shareholder Servicing Agreements substantially in the form of Exhibit C and
(B) Sales Support Agreements substantially in the form of Exhibit B, for
providing the services contemplated thereunder.
The shareholder servicing activities for which compensation may be
received under this Plan may include, among other things: (i) providing general
shareholder liaison services; (ii) processing purchases and redemption requests;
(iii) processing dividend and distribution payments; (iv) providing sales
information periodically to customers, including information showing their
contracts' positions in the Portfolios; (v) providing sub-accounting; (vi)
responding to inquiries from customers; (vii) arranging for bank wires; and
(viii) providing such other similar services as may be reasonably requested.
Servicing agents may include participating insurance companies.
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<PAGE>
Section 3. Except for the payments specified in Section 1, no
additional payments are to be made by the Trust under this Plan, provided that
nothing herein shall be deemed to preclude the payments such Portfolios are
otherwise obligated to make to (i) NationsBanc Advisors, Inc. ("NBAI"), pursuant
to the Investment Advisory Agreement and (ii) TradeStreet Investment Associates,
Inc. ("TradeStreet"), Gartmore Global Partners ("Gartmore") and Marsico Capital
Management LLC ("Marsico Capital") pursuant to Investment Sub-Advisory
Agreements, (iii) NationsBank of Texas, N.A. ("NationsBank Texas") and The Bank
of New York ("BONY"), pursuant to the Custody and Sub-Custody Agreement, (iv)
First Data Investor Services Group, Inc. ("First Data"), pursuant to the
Transfer Agency and Registrar Agreement, (v) Stephens Inc. ("Stephens"),
pursuant to the Administration Agreement and (vi) NBAI pursuant to the
Sub-Administration Agreement, (vii) First Data, pursuant to the
Co-Administration Agreement, Servicing Agents, pursuant to Shareholder Servicing
Agreements and (viii) for the expenses otherwise incurred by a Portfolio and the
Trust on behalf of the Shares in the normal conduct of such Portfolio's business
pursuant to the Investment Advisory Agreement and Investment Sub-Advisory
Agreements, the Custody and Sub-Custody Agreement, the Transfer Agency and
Registrar Agreement, the Administration Agreement, the Sub-Administration
Agreement, the Co-Administration Agreement and the Shareholder Servicing
Agreements. To the extent any such payments by the Trust on behalf of a Fund to
NBAI, TradeStreet, Gartmore, Marsico Capital, NationsBank Texas, First Data,
Stephens, or BONY; by NBAI, NationsBank Texas, First Data, BONY, or Stephens or
Servicing Agents, or any affiliate thereof, to any party pursuant to any
agreement; or, generally, by the Trust on behalf of a Portfolio to any party,
are deemed to be payments for the financing of any activity primarily intended
to result in the sale of the Shares within the context of Rule 12b-1 under the
1940 Act, then such payments shall be deemed to have been approved pursuant to
this Plan without regard to Section 1.
Section 4. Reports of Distributor. The officers of the Trust shall
report quarterly in writing to the Board of Trustees on the amounts and purpose
of payments for any of the activities in Section 2 and shall furnish the Board
of Trustees with such other information as the Board may reasonably request in
connection with such payments in order to enable the Board to make an informed
determination on the nature and value of such expenditures.
Section 5. Approval of Plan. This Plan shall continue in effect
for a period of more than one year from the date written below only so long as
such continuance is specifically approved at least annually by the Trust's Board
of Trustees, including the Trustees who are not interested persons of the Trust
and have no direct or indirect financial interest in the operation of this Plan
or in any Agreements related to this Plan ("Disinterested Trustees"), by vote
cast in person at a meeting called for the purpose of voting on this Plan.
Section 6. Termination. This Plan may be terminated at any time by
vote of a majority of the Disinterested Trustees or with respect to a particular
Portfolio by vote of a majority of the outstanding voting securities of the
Shares of such Portfolio, on not more than sixty (60) days' written notice to
any other party to the Plan, and shall terminate automatically in the event of
any act that constitutes an assignment of the Distribution Agreement or the
Investment Advisory Agreement.
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 Portfolio's
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<PAGE>
may bear for distribution pursuant to this Plan shall be effective only upon
approval by a vote of a majority of the outstanding Shares of such Portfolio,
and (b) any material amendments of the terms of this Plan shall become effective
only upon approval as provided in Section 6 thereof.
Section 8. Selection/Nomination of Trustees. So long as this Plan
is in effect, the selection and nomination of the Trust's Disinterested Trustees
shall be committed to the discretion of such Disinterested Trustees.
Section 9. Governing Law. This Plan shall be subject to the laws
of the State of Delaware and shall be interpreted and construed to further
promote the operation of the Trust as an open-end management investment company.
As used herein the terms "open-end management investment company," "assignment,"
"principal underwriter," "interested person," and "majority of the outstanding
voting securities" shall have the meanings set forth in the Securities Act of
1933, as amended or the 1940 Act, and the rules and regulations thereunder.
Section 10. Scope of Liability. Nothing herein shall be deemed to
protect the parties to any Agreement entered into pursuant to this Plan against
any liability to the Trust or its shareholders to which they would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties hereunder, or by reason of their reckless disregard
of their obligations and duties hereunder.
Section 11. Records. 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.
Section 12. Limitation of Liability. The names "Nations Annuity
Trust" and "Trustees of Nations Annuity 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 dated November 24, 1997, which is
hereby referred to and a copy of which is on file at the office of the State
Secretary of Delaware and at the principal office of the Trust. The obligations
of "Nations Annuity 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 Portfolio's Shares of the Trust must look solely to the
Trust Property belonging to such Portfolio's Shares for the enforcement of any
claims against the Trust.
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<PAGE>
EXHIBIT A
NATIONS ANNUITY TRUST
Nations Balanced Assets Portfolio
Nations Disciplined Equity Portfolio
Nations International Growth Portfolio
Nations Managed Index Portfolio
Nations Managed SmallCap Index Portfolio
Nations Marsico Focused Equities Portfolio
Nations Marsico Growth & Income Portfolio
Nations Value Portfolio
4
