As filed with the Securities and Exchange Commission
on May, 21 1999
Registration No. 811-09347
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___
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NATIONS MASTER INVESTMENT 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) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940, as amended.
However, beneficial interests in the Registrant are not being registered under
the Securities Act of 1933, as amended (the "1933 Act"), since such interests
will be issued solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by the investment companies or
certain other entities which are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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Nations Master Investment Trust
Part A
May 21, 1999
Nations Intermediate Bond Master Portfolio
Nations Blue Chip Master Portfolio
Nations International Equity Master Portfolio
Nations Marsico Focused Equities Master Portfolio
Nations Marsico Growth & Income Master Portfolio
Responses to Items 1 through 3 have been omitted pursuant to paragraph (B)(2)(b)
of the General Instructions to Form N-1A.
Nations Master Investment Trust ("Trust") is registered as an open-end
management investment company under the Company Act of 1940, as amended (the
"1940 Act"). The Trust is currently comprised of five separate series of Master
Portfolios (each a "Master Portfolio" and collectively the "Master Portfolios"):
Nations Intermediate Bond Master Portfolio, Nations Blue Chip Maser Portfolio,
Nations International Equity Master Portfolio, Nations Marsico Focused Equities
Master Portfolio, and Nations Marsico Growth & Income Master Portfolio. The
Trust's Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of beneficial interest ("Beneficial Interests") and to
establish and designate such Beneficial Interests into one or more Master
Portfolios.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS.
Nations Intermediate Bond Master Portfolio: Nations Intermediate Bond Master
Portfolio's investment objective is to seek to provide interest income and
capital appreciation. This Master Portfolio is a diversified portfolio which
will invest at least 65% of its total assets in investment grade intermediate
and longer term bonds, which consist of corporate and governmental fixed income
obligations, mortgage-backed securities, municipal securities and cash
equivalents. Under normal market and interest rate conditions, the investment
adviser expects that the Master Portfolio's average portfolio maturity will be
between three and six years.
The Master Portfolio may invest up to 35% of its assets in mortgage-backed
securities, including collateralized mortgage obligations or "CMOs," which will
be guaranteed as to principal and interest, but not market value, by the U.S.
Government or one of its agencies or instrumentalties.
The Master Portfolio's average dollar-weighted maturity will normally be between
three and six years.
Nations Blue Chip Master Portfolio: Nations Blue Chip Master Portfolio's
investment objective is to seek long-term capital appreciation through
investment in blue chip stocks. This Master Portfolio is a diversified portfolio
which invests at least 65% of its assets in blue chip securities listed on the
Dow Jones Industrial Average ("DJIA") or S&P 500 Composite Stock Price Index
("S&P 500 Index").1 The Master Portfolio may invest up to 15% of its total
assets in securities that are not listed on the DJIA or S&P 500 Index.
Typically, the Master Portfolio will own approximately 100 stocks.
The Master Portfolio may invest up to 20% of its total assets in cash equivalent
securities. Cash equivalents are the following short-term interest bearing
instruments: obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalties (some of which may be subject to repurchase
agreements), certificates of deposit, bankers' acceptances, time deposits and
other interest-bearing deposits issued by domestic and foreign banks and foreign
branches of U.S. banks, foreign government securities and commercial paper
issued by U.S. and foreign issuers which is rated at the time of purchase at
least Prime-2 by Moody's or A-2 by S&P, Duff & Phelps Credit Rating Co. ("D&P")
and Fitch IBCA. For a description of corporation debt ratings, see "Schedule A."
__________________
1 "Standard & Poor's" and "Standard & Poor's 500" are trademarks of The McGraw-
Hill Companies, Inc.
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The portfolio management team uses QUANTITATIVE ANALYSIS to build a portfolio
that matches the industry, sector, [style] and [capitalization] characteristics
of the S&P 500 Index. The team will vary the Master Portfolio's holdings to try
to provide higher returns that the S&P 500 while maintaining a level of risk
similar to that of the index.
Nations International Equity Master Portfolio: Nations International Equity
Master Portfolio's investment objective is to seek long-term capital growth by
investing primarily in equity securities of non-United States companies in
Europe, Australia, the Far East and other regions, including developing
countries. In seeking to achieve its objective, the Master Portfolio will invest
at least 65% of its assets in common stocks of established non-United States
companies that the investment adviser believes have potential for growth of
capital. The Master Portfolio intends to diversify investments broadly among
countries and to normally invest in securities representing at least three
different countries. Under unusual circumstances, however, the Master Portfolio
may invest substantially all of its assets in companies in one or two countries.
The Master Portfolio may invest up to 35% of its assets in any other type of
security including: convertible securities; preferred stocks; bonds, notes and
other debt securities (including Eurodollars securities); and obligations of
domestic or foreign governments and their political subdivisions.
The Master Portfolio also may invest in American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), European Depository Receipts ("EDRs"),
American Depository Shares ("ADSs"), bonds, notes, other debt securities of
foreign issuers, securities of foreign investment funds or trusts and real
estate investment trust securities. For defensive purposes, the Master Portfolio
may temporarily invest substantially all of its assets in U.S. financial markets
or in U.S. dollar-denominated instruments.
This Fund's investment strategy is based on the belief that:
o superior earnings growth, which drives increases in stock prices, is
difficult to achieve, and that few companies can sustain superior growth
beyond three years.
o stock prices rise in response to unexpected earnings growth
o these principles hold true over time and across markets.
Nations Marsico Focused Equities Master Portfolio: Nations Marsico Focused
Equities Master Portfolio seeks long-term growth of capital. This Master
Portfolio normally invests at least 65% of its assets in common stocks of large
companies. The Master Portfolio, which is non-diversified, generally holds a
core position of 20 to 30 common stocks. The Master Portfolio may invest up to
25% of its assets in foreign securities. The Master Portfolio may also invest
smaller percentages of its assets in other kinds of securities, which are
described in Part B.
The investment sub-adviser, looks for companies with earnings growth potential
that may not be recognized by other investors, focusing on companies that have
some of the following characteristics: (i) products, markets and technologies
influx that can result in extraordinary growth, (ii) strong brand franchises
that can take advantage of a changing global environment, (iii) global reach
that can allow the Master Portfolio to take advantage of a broader range of
investment opportunities, and (iv) are moving with, not against, major social,
economic and cultural shifts taking place in the world.
Once an investment opportunity is identified, the sub-adviser uses an analytical
process to assess its potential as an investment. This process includes a
"top-down" analysis that takes into account economic factors like interest
rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis that considers
individual company characteristics like commitment to research, market franchise
and quality of management.
Nations Marsico Growth & Income Master Portfolio: Nations Marsico Growth &
Income Master Portfolio seeks long-term growth of capital with a limited
emphasis on income. The Master Portfolio normally invests up to 75% of its
assets in equity securities that are believed to have significant growth
potential and at least 25% of its assets in equity and fixed income securities
that are believed to have income potential. The Master Portfolio generally holds
35 to 50
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securities and emphasizes large-capitalization common stocks.
The sub-adviser, may shift assets between growth and income securities based on
its analysis of market, financial and economic conditions. It will emphasize
growth securities if it believes they will provide better returns than the
yields available or expected on income-producing securities. If the sub-adviser
believes it appropriate to do so, it may also reduce investments in growth
securities to 25% of the Master Portfolio's assets. Since income is a part of
the Master Portfolio's investment objective, the sub-adviser may consider a
company's anticipated dividends when selecting equity securities. It may also
find opportunities for capital growth from fixed income securities because of
expected changes in interest rates, credit rating, currency exchange rates or
other factors. The Master Portfolio is not, however, designed to produce a
consistent level of income. The Master Portfolio may hold up to 25% of its
assets in foreign securities. The Master Portfolio may also invest smaller
percentages of its assets in other kinds of securities, which are described in
Part B.
The sub-adviser, looks for companies with earnings growth potential that may not
be recognized by other investors, focusing on companies that have some of the
following characteristics: (i) products, markets and technologies influx that
can result in extraordinary growth, (ii) strong brand franchises that can take
advantage of a changing global environment, (iii) global reach that can allow
the Master Portfolio to take advantage of a broader range of investment
opportunities, and (iv) are moving with, not against, major social, economic and
cultural shifts taking place in the world
Once an investment opportunity is identified, the sub-adviser uses a disciplined
analytical process to assess its potential as an investment. This process
includes a "top-down" analysis that takes into account economic factors like
interest rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis that considers
individual company characteristics like commitment to research, market franchise
and quality of management.
RELATED RISKS
While investing in equity securities and fixed income securities can bring added
benefits, it may also involve additional risks. Investors could lose money on
their investment in the Master Portfolios, or the Master Portfolios may not
perform as well as other investments. The Master Portfolios have the following
general risks:
o Investment strategy risk - The sub-advisers use an investment strategy that
tries to identify securities with growth or income potential. There is a
risk that the value of these investments will fall or will not rise as high
as the sub-advisers expect. Nations Marsico Focused Equities Master
Portfolio is considered to be "non- diversified" because it may hold fewer
securities than other kinds of equity funds. This increases the risk that
its value could go down significantly if one or more of its investments
performs poorly. The value of this Master Portfolio will tend to have
greater price swings than the value of more diversified equity funds. The
Master Portfolio may become a diversified fund by limiting the investments
in which more than 5% of its total assets are invested. There also is a
risk that the value of the Master Portfolio's investments will fall or will
not rise as high as the sub-adviser expects.
o Stock market risk - The value of the stocks the Master Portfolio holds,
like the stock market in general, can rise or fall over short as well as
long periods.
o Interest rate risk - The prices of the Master Portfolio's fixed income
securities will tend to fall when interest rates rise and to rise when
interest rates fall. In general, fixed income securities with longer terms
tend to fall more in value when interest rates rise than fixed income
securities with shorter terms.
o Credit risk - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income securities, but
is generally not a factor for securities that are issued or backed by the
U.S. government. Fixed income securities with the lowest investment grade
rating or that aren't investment grade are more speculative in nature than
securities with higher ratings, and they tend to be more sensitive to
credit risk, particularly during a downturn in the economy.
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o Your investment in these Master Portfolios is not a bank deposit and is not
insured or guaranteed by NationsBank, N.A. (NationsBank), Bank of America
National Trust and Savings Association (Bank of America), the Federal
Deposit Insurance Corporation or any other government agency. Your
investment may lose money.
o Affiliates of NationsBank and Bank of America are paid for the services
they provide to the Master Portfolios.
o Changing investment objectives and policies - The investment objective and
certain investment policies of any Master Portfolio can be changed without
shareholder approval. Other investment policies may be changed only with
shareholder approval.
o Holding other kinds of investments - The Master Portfolios may hold
investments that aren't part of their principal investment strategies.
Please refer to Part B for more information.
o Foreign investment risk - The Nations Blue Chip Master Portfolio may invest
up to 20% of its assets in foreign securities. The Nations Marsico Focused
Equities Master Portfolio and Nations Marsico Growth & Income Master
Portfolio, may invest up to 25% of their assets in foreign securities. The
Nations International Equity Master Portfolio will invest at least 80% of
its assets in foreign securities. This means the Master Portfolios can be
affected by the risks of foreign investing. Master Portfolios that invest
in foreign securities may be affected by changes in currency exchange rates
and the costs of converting currencies; foreign government controls on
foreign investment, repatriation of capital, and currency and exchange;
foreign taxes; inadequate supervision and regulation of some foreign
markets; volatility from a lack of liquidity; different settlement
practices or delayed settlements in some markets; difficulty getting
complete or accurate information about foreign companies; less strict
accounting, auditing and financial reporting standards than those in the
U.S.; political, economic or social instability; and difficulty enforcing
legal rights outside the U.S.
Securities issued by companies in developing or emerging market countries,
like those in Eastern Europe, the Pacific Basin and the Far East, may be
more sensitive to the risks of foreign investing. In particular, these
countries may experience instability resulting from rapid social, political
and economic development. Many of these countries are dependent on
international trade, which makes them sensitive to world commodity prices
and economic downturns in other countries. Some emerging countries have a
higher risk of currency devaluation, and some countries may experience long
periods of high inflation or rapid changes in inflation rates.
o Investing defensively - A Master Portfolio may temporarily hold investments
that are not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn or
because of political or other conditions. A Master Portfolio may not
achieve its investment objective while it is investing defensively.
o Portfolio turnover - A Master Portfolio that replaces -- or turns over --
more than 100% of its securities in a year may have higher brokerage costs
than a Master Portfolio that is trading less frequently. This may also
result in larger distributions of capital gains to Beneficial Interest
holders. All of the Master Portfolios generally buy securities for capital
appreciation, investment income, or both, and do not engage in short-term
trading.
o Preparing for the year 2000 - The year 2000 is an issue for organizations,
companies and entities around the world that rely on computer systems to
process date-related information. Computer systems that cannot read a
four-digit year may not be able to calculate and process information on or
after January 1, 2000.
All of the Master Portfolios' primary service providers have confirmed that
they have been working to make the necessary changes to their systems, and
that they expect them to be adapted in time. There is no guarantee,
however, that their computer systems will ready by the year 2000. If their
computer systems are not ready in time, there could be a negative effect on
Master Portfolio operations.
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A Master Portfolio's performance could also be affected if the securities
it holds decrease in value because of year 2000 issues.
ITEM 5: MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE:
The response to Item 5 has been omitted pursuant to paragraph (B)(2)(b) of the
General Instructions to Form N-1A.
ITEM 6: MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
INVESTMENT ADVISER
NationsBanc Advisors, Inc. (NBAI) is the investment adviser to each of the
Master Portfolios, as well as to over 70 other mutual fund portfolios in the
Nations Funds Family ("Nations Funds"). NBAI is responsible for the overall
management and supervision of the investment management of each of the Master
Portfolios. NBAI and Nations Funds have engaged investment sub-advisers, which
are generally responsible for the day-to-day investment decisions for each of
the Master Portfolios.
NBAI is a registered investment adviser. It's a wholly owned subsidiary of
NationsBank, which is owned by Bank of America Corporation. It is anticipated
that NationsBank and Bank of America will merge in July 1999. The combined bank
will be called Bank of America National Trust and Savings Association. The level
or quality of advisory and other services provided to the Master Portfolios by
NationsBank, NBAI or its affiliates should not be affected by the merger. NBAI
has its principal offices at One Bank of America Plaza Charlotte, North Carolina
28255
Nations Funds pays NBAI an annual fee for its investment advisory services. The
fee is calculated daily based on the average net assets of each Master Portfolio
and is paid monthly. NBAI uses part of this money to pay investment sub-advisers
for the services they provide to Nations Master Portfolios.
The following chart shows the maximum advisory fees NBAI can receive:
Maximum investment advisory fee, as a % of average daily net assets:
Maximum
advisory
fee
Nations Intermediate Bond Master Portfolio 0.40
Nations Blue Chip Master Portfolio 0.65
Nations International Equity Master Portfolio 0.90
Nations Marsico Focused Equities Master Portfolio 0.85
Nations Marsico Growth & Income Master Portfolio 0.85
INVESTMENT SUB-ADVISERS
Nations Funds and NBAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Master Portfolios. These sub-advisers
function under the supervision of the Board of Trustees and NBAI.
TradeStreet Investment Associates, Inc. ("TradeStreet"), with principal offices
as One Bank of America Plaza, Charlotte, North Carolina 28255, serves as the
investment sub-adviser for Nations Intermediate Bond Master Portfolio.
TradeStreet is a registered investment adviser and a wholly owned subsidiary of
NationsBank. Its management expertise covers all major domestic asset classes.
Currently managing more than $70 billion, TradeStreet has more than 140
institutional clients and is investment sub-adviser to over 50 mutual funds in
the Nations Funds. TradeStreet uses a team approach to investment management.
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Each team has access to the latest analytic technology and expertise. The Fixed
Income Team will be responsible for the day to day management of the Nations
Intermediate Bond Master Portfolio.
Chicago Equity Partners Corporation ("Chicago Equity"), with principal offices
at 231 South LaSalle, Chicago, Illinois 60697, serves as the sub-adviser for
Nations Blue Chip Master Portfolio. Chicago Equity is a wholly-owned subsidiary
of BankAmerica Corporation.
The Equity Management Team of Chicago Equity is responsible for the day-to-day
management of Nations Blue Chip Master Portfolio.
Gartmore Global Partners ("Gartmore"), located at Gartmore House, 16-18 Monument
Street, London EC3R 8AJ, England, 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 holding company. National
Westminster Bank plc and affiliated entities own 100% of the equity of Gartmore
plc. Gartmore serves as one of three sub-advisers to the National International
Equity Master Portfolio. Philip Ehrmann, Seok Teoh, Mark Fawcett, Stephen Jones,
Stephen Watson, and Brian O'Neill are responsible for the day-to-day management
of Nations International Equity Master Portfolio. The business experience of
these individuals during the past 5 years is as follows:
Philip Ehrmann is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in developing countries (since June
1998). Mr. Ehrmann is also Principal Portfolio Manager of Nations Emerging
Markets Fund (since 1995) and is Head of the Gartmore Emerging Markets Team.
Prior to joining Gartmore in 1995, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. He began his career in 1981 as an institutional
stockbroker with Rowe & Pitman Inc. and also spend a brief period with
Prudential Bache Securities as an institutional salesman before joining Invesco
in 1984.
Seok Teoh is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Asia (since June 1998). Ms. Teoh is
also Principle Portfolio Manager of Nations Pacific Growth Funds (since that
Fund's inception in June 1995). She has been with Gartmore since 1990 as the
London based manager of its Far East Team.
Mark Fawcett if Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Japan (since June 1998). He is also
Senior Investment Manager for the Gartmore Japanese Equities Team. Mr. Fawcett
joined Gartmore as an investment manager on the Japanese Equity Team in 1991 and
has specific responsibility for large stock research.
Stephen Jones is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Europe (since June 1998). He is also
Head of Gartmore European Equities. Mr. Jones joined Gartmore as a senior
investment manager in the European Equities Team in 1994 and was appointed Head
of the European Equity Team in 1995. He began his career at the Prudential in
1984, spending a year as a business analyst before becoming the personal
assistant to the Group Chief Executive.
Stephen Watson is Co-Portfolio Manager for Nations International Equity Fund,
responsible for allocating the Fund's assets among the various regions in which
it invests, as well as determining the Fund's investments in regions not covered
by the other Co-Portfolio Managers (since June 1998). Mr. Watson had been the
sole Portfolio Manager of the Fund since February 1995. He joined Gartmore as a
Global Fund Manager in 1993 and currently holds the position of Chief Investment
Officer of Gartmore's Global Partners and is a member of Gartmore's Global
Policy Group. Previously, Mr. Watson was a director and global fund manager with
James Capel Fund Managers, London, as well as Client Services Manager for
international clients.
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 Fund since 1997. 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 resources funds.
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INVESCO Global Asset Management (N.A.) ("INVESCO") with principal offices
located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309, was founded in
1997 as a division of INVESCO Global, a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company also located in London, England
that, through its subsidiaries, engages in international investment management.
INVESCO serves as one of three sub-advisers of the Nations International Equity
Master Portfolio.
The International Equity Portfolio Management Team of INVESCO is responsible for
the day-to-day management of the assets allocated to INVESCO of Nations
International Equity Master Portfolio.
Putnam Investment Management, Inc. ("Putnam"), with principal offices located at
One Post Office Square, Boston, Massachusetts 02109, is a wholly owned
subsidiary of Putnam Investments, Inc., an investment management firm founded in
1937 which, except for shares held by employees is owned by Marsh & McLennan
Companies, a publicly traded professional services firm that engages, through
its subsidiaries in the business of investment management. Putnam serves as one
of three sub-advisers to the Nations International Equity Master Portfolio.
The Core International Equity Group of Putnam is responsible for the day-to-day
management of the assets allocated to Putnam of Nations International Equity
Master Portfolio.
Marsico Capital Management, LLC ("Marsico Capital") with principal offices at
1200 17th Street, Suite 1300, Denver, Colorado 80202, serves as the investment
sub-adviser for the Nations Marsico Focused Equities Master Portfolio and the
Nations Marsico Growth & Income Master Portfolio. Marsico Capital is a full
service investment advisory firm founded by Thomas F. Marsico in September 1997.
It is a registered investment adviser and specializes in large capitalization
stocks and currently has over $6 billion in assets under management.
Marsico Management Holdings, LLC, a wholly owned subsidiary of NationsBank, owns
50% of the equity of Marsico Capital.
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for the day-to-day management of these Master
Portfolios. Before forming the company, Mr. Marsico was an executive vice
president and portfolio manager at Janus Capital Corporation. He has more than
20 years of experience as a securities analyst and portfolio manager.
ITEM 7: SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The value of a Master Portfolio's assets is based on the total market value of
all of the securities it holds. The prices reported on stock exchanges and
securities markets around the world are usually used to value securities in a
Master Portfolio. If prices aren't readily available, we'll base the price of a
security on its fair market value. We use the amortized cost method, which
approximates market value, to value short-term investments maturing in 60 days
or less. International markets may be open on days when U.S. markets are closed,
and the value of foreign securities owned by the portfolio could change on days
when Beneficial Interests may not be purchased or redeemed.
All transactions are based on the net asset value of the Master Portfolios. We
calculate net asset value per unit of Beneficial Interest at the end of each
business day. First, we calculate the net asset value by determining the value
of the Master Portfolio's assets and then subtracting its liabilities. Next, we
divide this amount by the number of units of Beneficial Interest that investors
are holding.
A business day is any day that the New York Stock Exchange (NYSE) is open. A
business day ends at the close of regular trading on the New York Stock Exchange
(NYSE), usually at 4:00 p.m., Eastern time. If the NYSE closes early, the
business day ends as of the time the NYSE closes. The NYSE is closed on weekends
and on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
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PURCHASE OF BENEFICIAL INTERESTS
Beneficial Interests in the Master Portfolios are issued by the Trust in private
placement transactions which do not involve a "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended ("1933 Act").
Investments in the Master Portfolios may only be made by investment companies or
other entities which are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The Master Portfolios are prohibited by the Trust's
Declaration of Trust from accepting investments from individuals, S
corporations, partnerships and grantor trusts.
Stephens Inc. ("Stephens" or "Distributor") with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the distributor of the Trust,
assisting with Beneficial Interestholders' transactions. An account may be
opened by contacting either the Trust or Stephens. There is no minimum initial
or subsequent purchases amount with respect to any Master Portfolio of the
Trust. The Trust reserves the right to reject any purchase order for any reason.
In addition to cash purchases of Beneficial Interests, if accepted by the Trust,
investments in Beneficial Interests of a Master Portfolio may be made in
exchange for securities which are eligible for purchase by the Master Portfolio
and consistent with the Master Portfolio's investment objective and policies as
described above in this Part A. All dividends, interest, subscription, or other
rights pertaining to such securities will become the property of the Master
Portfolio and must be delivered to the Master Portfolio by the investor upon
receipt from the issuer.
Orders to buy, sell or exchange Beneficial Interests are processed on business
days. Orders received by Stephens before the end of a business day will receive
that day's net asset value per unit of Beneficial Interest. Orders received
after the end of a business day will receive the next business day's net asset
value per unit of Beneficial Interest. The business day that applies to your
order is also called the trade date. We and Stephens may refuse any order. If
this happens, we'll return any money we've received to your selling agent.
REDEMPTION OF BENEFICIAL INTERESTS
An investor may redeem/sell Beneficial Interests in any amount by sending a
written request to or calling Stephens. Redemption requests must be made by a
duly authorized representative of the investor and must specify the name of the
Master Portfolio, the dollar amount to be redeemed and the investor's name and
account number.
Redemption orders are effected at the net asset value of the Beneficial
Interests next determined after receipt of the order in proper form by the
Trust. The Master Portfolios will make payment for all Beneficial Interests
redeemed after receipt by Stephens of a request in proper form, except as
provided by the rules of the Securities and Exchange Commission. The Master
Portfolios impose no charge when Beneficial Interests are redeemed. The value of
the Beneficial Interests redeemed may be more or less than the investor's cost,
depending on the Master Portfolio's current net asset value.
The Trust will wire the proceeds of redemption in federal funds to the
commercial bank specified by the investor, normally the next business day after
receiving the redemption request and all necessary documents. Wire redemptions
may be terminated or modified by the Trust at any time. An investor should
contact its bank for information on any charges imposed by the bank in
connection with the receipt of redemption proceeds by wire. During periods of
substantial economic or market change, telephone wire redemptions may be
difficult to implement.
The Trust will act upon the instruction of any person by telephone deemed by it
to be authorized to redeem Beneficial Interests on behalf of an investor.
Neither the Trust nor any of its service contractors will be liable for any loss
or expense for acting upon telephone instructions that are reasonably believed
to be genuine. In attempting to confirm that telephone instructions are genuine,
the Trust will use such procedures as are considered reasonable. To the extent
the Trust fails to use reasonable procedures as a basis for its belief, it
and/or its service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
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The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the NYSE is closed (other than weekends or holidays) or trading
on NYSE is restricted, or, to the extent otherwise permitted by the Investment
Company Act of 1940, as amended ("1940 Act"), if an emergency exists.
DISTRIBUTIONS:
Investors are entitled to their pro rata shares of any distributions arising
from the net investment income and net realized gains, if any, earned
investments held by the Master Portfolios in which such investors hold
Beneficial Interests. Each Portfolio will allocate its investment income,
expenses, and realized and unrealized gains and losses daily.
A request for a distribution must be made in writing to Nations Master
Investment Trust, Nations Intermediate Bond Master Portfolio, Nations Blue Chip
Master Portfolio, Nations International Equity Master Portfolio, Nations Marsico
Growth & Income Master Portfolio or Nations Marsico Focused Equities Master
Portfolio, c/o NationsBanc Advisors, Inc., One Bank of America Plaza, 33rd
Floor, Charlotte, North Carolina 28255, and will become effective after its
receipt by the Trust.
TAXES:
Each Master Portfolio has been and will continue to be operated in a manner so
as to qualify it as a non-publicly traded partnership for federal income tax
purposes. Provided that a Master Portfolio so qualifies, it will not be subject
to any federal income tax on its income and net capital gains (if any). However,
each investor in the Master Portfolio will be taxable on its distributive share
of the Master Portfolio's taxable income in determining its federal income tax
liability. As a non-publicly traded partnership, the Master Portfolio will be
deemed to have "passed through" to interestholders any interests, dividends,
gains or losses. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder. All Master Portfolios will have less than 100 investors.
It is intended that the Master Portfolio's assets, income and distributions will
be managed in such a way that a regulated investment company investing in the
Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.
Investor inquiries should be directed to Master Investment, One Bank of America
Plaza, 33rd Floor, Charlotte, North Carolina 28255.
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ITEM 8: DISTRIBUTION ARRANGEMENTS.
The Trust is registered as an open-end management investment company under the
1940 Act. The Trust was organized as a Delaware business trust. Investors in the
Trust will each be liable for all obligations of the Trust. However, the risk of
an investor incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue Beneficial Interests and to establish and
designate such Beneficial Interests into one or more Master Portfolios.
Beneficial Interests may be purchased only by institutional investors which are
"accredited investors" within the meaning of Regulation D under the 1933 Act,
and may not be purchased by individuals, S corporations, partnerships or grantor
trusts.
The Trust is currently comprised of five separate series of Master Portfolios
(each a "Master Portfolio" and collectively the "Master Portfolios"): Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations Marsico Focused Equities Master
Portfolio, and Nations Marsico Growth & Income Master Portfolio. Each Master
Portfolio (except for Nations Marsico Focused Equities Master Portfolio) is
"diversified" as defined in the 1940 Act.
Each Master Portfolio is a separate series of the Trust. A non-accredited
investor does not directly purchase an interest in the Master Portfolio, but
instead purchases shares in a corresponding "feeder" fund which invests all of
its assets in a Master Portfolio series. The feeder funds related to the Master
Portfolio are the Nations Intermediate Bond Fund, Nations Blue Chip Fund,
Nations International Equity Fund, Nations Marsico Focused Equities Fund, and
Nations Marsico Growth & Income Fund (individually, a "Private Fund", and
collectively, the "Private Funds"), which in turn invest all of their assets in,
respectively, the Nations Intermediate Bond Master Portfolio, Nations Blue Chip
Master Portfolio, Nations International Equity Master Portfolio, Nations Marsico
Focused Equities Master Portfolio, and Nations Marsico Growth & Income Master
Portfolio. Each corresponding Master Portfolio, which has the same investment
objective, policies, and limitations as the Private Fund, invests in the actual
securities.
Other investors may also be permitted to invest in a Master Portfolio. All other
investors will invest in a Master Portfolio on the same terms and conditions as
a Private Fund, although there may be different administrative and other
expenses. Therefore, the Private Funds may have different returns than other
investors of the same Master Portfolio.
A discussion of the risk factors, objectives and other investment aspects in a
Private Fund will include all aspects of an investment in the corresponding
Master Portfolio. In this registration statement, the discussion of risk factors
which apply to an investment by a Master Portfolio shall include the risk
factors which apply to an investment by a Private Fund.
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The office of the Trust is located at One Bank of America
Plaza, Charlotte, NC 28255.
ITEM 9: FINANCIAL HIGHLIGHTS INFORMATION
The response to Item 9 has been omitted pursuant to paragraph (B)(2)(b) of the
General Instructions to Form N-1A.
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NATIONS MASTER INVESTMENT TRUST
Part B
Nations Intermediate Bond Master Portfolio
Nations Blue Chip Master Portfolio
Nations International Equity Master Portfolio
Nations Marsico Growth & Income Master Portfolio
Nations Marsico Focused Equities Master Portfolio
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
This Part B is not a prospectus. It is intended to provide additional
information regarding the five Master Portfolios of Nations Master Investment
Trust (the "Trust") and should be read in conjunction with the Trust's Part A
dated May 21, 1999. All terms used in Part B that are defined in Part A will
have the same meanings assigned in Part A. Copies of Part A may be obtained
without charge by writing Nations Funds c/o the Distributor, Stephens Inc., One
Bank of America Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by
calling Nations Funds at (800) 321-7854.
TABLE OF CONTENTS
THE TRUST HISTORY.............................................................3
DESCRIPTION OF THE TRUST, MASTER PORTFOLIOS, INVESTMENTS AND RISKS............3
INVESTMENT LIMITATIONS........................................................3
FUNDAMENTAL INVESTMENT LIMITATIONS............................................3
NON-FUNDAMENTAL INVESTMENT LIMITATIONS........................................4
ADDITIONAL INFORMATION ON MASTER PORTFOLIO INVESTMENTS........................5
Asset-Backed Securities...............................................5
Bank Instruments......................................................7
Borrowings............................................................7
Commercial Instruments................................................8
Convertible Securities................................................8
Corporate Debt Securities.............................................9
Custodial Receipts...................................................10
Currency Swaps.......................................................10
Delayed Delivery Transactions........................................10
Dollar Roll Transactions ............................................10
Equity Swap Contracts................................................11
Foreign Currency Transactions .......................................12
Futures, Options and Other Derivative
Instruments ...................................................13
Risk Factors Associated with Futures and Options Transactions........19
Guaranteed Investment Contracts......................................21
Insured Municipal Securities ........................................22
Interest Rate Transactions ..........................................22
Lower Rated Debt Securities..........................................22
Municipal Securities ................................................24
Options on Currencies................................................26
Other Investment Companies...........................................26
Real Estate Investment Trusts........................................27
Repurchase Agreements ...............................................27
Restricted Securities................................................27
Reverse Repurchase Agreements .......................................28
Securities Lending...................................................28
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Short Sales..........................................................28
Special Situations...................................................29
Stand-by Commitments ................................................29
Stripped Securities..................................................30
Tax-Exempt Instruments...............................................30
U.S. and Foreign Bank Obligations....................................30
U.S. Government Obligations..........................................31
Use of Segregated and Other Special Accounts.........................31
Variable Amount Master Demand Notes..................................32
Variable- and Floating-Rate Instruments .............................32
Warrants.............................................................33
When-Issued Purchases and Forward Commitments ......................33
Portfolio Turnover...................................................34
Nations Master Portfolios Retirement Plan............................38
Nations Master Portfolios Deferred Compensation Plan.................38
COMPENSATION TABLE...........................................................39
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................40
INVESTMENT ADVISORY AND OTHER SERVICES.......................................40
BROKERAGE ALLOCATION AND OTHER PRACTICES.....................................43
Section 28(e) Standards...............................................45
CAPITAL STOCK AND OTHER SECURITIES...........................................45
Description of Shares.................................................45
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................46
DETERMINATION OF NET ASSET VALUE.............................................47
TAXATION.....................................................................48
UNDERWRITERS.................................................................48
CALCULATION OF PERFORMANCE DATA..............................................49
FINANCIAL STATEMENTS.........................................................49
SCHEDULE A - DESCRIPTION OF RATINGS.........................................A-1
SCHEDULE B - ADDITIONAL INFORMATION CONCERNING OPTIONS
& FUTURES......................................................B-1
SCHEDULE C - ADDITIONAL INFORMATION CONCERNING
MORTGAGE BACKED SECURITES...................................................C-1
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ITEM 11. TRUST HISTORY
The Trust is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust was
organized as a Delaware business trust. The Trust's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of beneficial
interests ("Beneficial Interests") and to establish and designate such
Beneficial Interests into one or more master portfolios. Beneficial Interests
may be purchased only by institutional investors which are "accredited
investors" within the meaning of Regulation D under the Securities Act of 1933,
as amended (the "1933 Act"), and may not be purchased by individuals, S
corporations, partnerships or grantor trusts. The number of investors for each
master portfolio may not exceed 100.
The Trust is a member of the Nations Funds family ("Nations Funds"), a fund
complex consisting of Nations Fund, Inc., Nations Fund Trust, Nations Fund
Portfolios, Inc., Nations Annuity Trust, Nations Institutional Reserves and
Nations LifeGoal Master Portfolio, Inc. The Nations Fund Family currently has
more than 70 distinct investment portfolios and total assets in excess of $60
billion.
ITEM 12. DESCRIPTION OF THE TRUST, MASTER PORTFOLIOS, INVESTMENTS AND RISKS
The Trust is currently comprised of five separate series of Master Portfolios
(each a "Master Portfolio" and collectively the "Master Portfolios"): Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations Marsico Focused Equities Master
Portfolio, and Nations Marsico Growth & Income Master Portfolio. Each Master
Portfolio (except for Nations Marsico Focused Equities Master Portfolio) is
"diversified" as defined in the 1940 Act.
Each Master Portfolio is a separate series of the Trust. An investor does not
purchase an interest in the Master Portfolio, but instead, purchases shares in a
corresponding "feeder" fund which invests all of its assets in a Master
Portfolio series. The feeder funds related to the Master Portfolio are the
Nations Intermediate Bond Fund, Nations Blue Chip Fund, Nations International
Equity Fund, Nations Marsico Focused Equities Fund, and Nations Marsico Growth &
Income Fund (each, a "Private Fund", and collectively, the "Private Funds"),
which in turn invest all of their assets in, respectively, the Nations
Intermediate Bond Master Portfolio, Nations Blue Chip Master Portfolio, Nations
International Equity Master Portfolio, Nations Marsico Focused Equities Master
Portfolio, and Nations Marsico Growth & Income Master Portfolio. Each
corresponding Master Portfolio, which has the same investment objective,
policies, and limitations as the Private Fund, invests in the actual securities.
Other investors may also be permitted to invest in a Master Portfolio. All other
investors will invest in a Master Portfolio on the same terms and conditions as
a Private Fund, although there may be different administrative and other
expenses. Therefore, the Private Master Portfolio may have different returns
than other investors of the same Master Portfolio.
INVESTMENT LIMITATIONS
Information concerning each Master Portfolio's investment objective is set forth
in Part A. There can be no assurance that the Master Portfolios will achieve
their objectives. The principal features of the Master Portfolios' investment
programs and the primary risks associated with those investment programs are
discussed in Part A. The values of the securities in which the Master Portfolios
invest fluctuate based upon interest rates, foreign currency rates, the
financial stability of the issuer and market factors.
FUNDAMENTAL INVESTMENT LIMITATIONS:
As a matter of fundamental policy which may not be changed without a majority
vote of a Master Portfolio's Beneficial Interest holders, each Master Portfolio
will not:
1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either
(a) in connection with the disposition of a portfolio security, or (b)
in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective.
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2. Purchase or sell real estate, except a Master Portfolio may purchase
securities of issuers which deal or invest in real estate and may
purchase securities which are secured by real estate or interests in
real estate.
3. Purchase or sell commodities, except that a Master Portfolio may to the
extent consistent with its investment objective, invest in securities
of companies that purchase or sell commodities or which invest in such
programs, and purchase and sell options, forward contracts, futures
contracts, and options on futures contracts. This limitation does not
apply to foreign currency transactions including without limitation
forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
government, any state or territory of the United States, or any of
their agencies, instrumentalities or political subdivisions, and (b)
notwithstanding this limitation or any other fundamental investment
limitation, assets may be invested in the securities of one or more
diversified management investment companies to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
5. Make loans, except to the extent permitted by the 1940 Act.
6. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
7. Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as
a result, more than 5% of its total assets will be invested in the
securities of such issuer or it would own more than 10% of the voting
securities of such issuer, except that (a) up to 25% of its total
assets may be invested without regard to these limitations and (b) a
Fund's assets may be invested in the securities of one or more
diversified management investment companies to the extent permitted by
the 1940 Act.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS:
Each Master Portfolio may not:
1. Sell securities short, maintain a short position, or purchase securities
on margin, except for such short-term credits as are necessary for the
clearance of transactions. For this purpose, a deposit or payment by a
Fund for initial or maintenance margin in connection with future
contracts is not considered to be the purchase or sale of a security on
margin.
2. Purchase securities of other investment companies except as permitted by
the 1940 Act.
3. Write or sell puts, calls, straddles, spreads or combinations thereof
except that a Fund may acquire standby commitments and may enter into
futures contracts and options in accordance with their investment
objectives.
Pursuant to a fundamental investment restriction (except for the Nations Marsico
Focused Equities Master Portfolio), the Master Portfolios do not have authority
to purchase any securities which would cause more than 25% of the value of any
Master 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.
For purposes of the foregoing fundamental and non-fundamental 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, the Master Portfolios.
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ADDITIONAL INFORMATION ON MASTER PORTFOLIO INVESTMENTS
Additional information on the particular types of securities in which certain
Master Portfolios may invest in is set forth below.
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 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. 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 Master Portfolio may
invest may include those issued or guaranteed by GNMA, FNMA, or "Freddie Mac"
(see Schedule C). 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 the
Master Portfolio.
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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 ("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 of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the Master 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 Master 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 Master 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 Master 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 interest and have the
effect of reducing future payments. Estimated average life will be determined by
the investment adviser and used for the purpose of determining the average
weighted maturity and duration of the Master Portfolios.
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.
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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.
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
stated above, the Adviser 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.
BANK INSTRUMENTS
Obligations of U.S. commercial banks include certificates of deposit, time
deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however, time deposits cannot be traded in the
secondary market. Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods and furnish dollar
exchanges. Maturities are generally six months or less.
BORROWINGS
The Trust participates in an uncommitted line of credit provided by The Bank of
New York ("BNY") under a line of credit agreement (the "Agreement"). Advances
under the Agreement are taken primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. Interest on borrowings is payable at the
federal funds rate plus .50% on an annualized basis. The Agreement requires,
among other things, that each participating Master Portfolio maintain a ratio of
no less than 4 to 1 net assets (not including funds borrowed pursuant to the
Agreement) to the aggregate amount of indebtedness pursuant to the Agreement.
Specific borrowings by a Master Portfolio under the Agreement for each fiscal
year, if any, will be described in the Master Portfolios' Annual Report. The
Master Portfolios may lend portfolio securities and participate in a interfund
lending program with other members of the Nations Funds Family after obtaining
permission from the Commission.
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 Master Portfolio in commercial
paper will consist of issues rated in a manner consistent with such Master
Portfolio's investment policies
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and objectives. In addition, the Master Portfolios may acquire unrated
commercial paper and corporate bonds that are determined by the investment
adviser at the time of purchase to be of comparable quality to rated instruments
that may be acquired by such Master Portfolios as previously described.
Variable-rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the
investment advisor that they are: (i) comparable in priority and security to a
class of short-term instruments of the same issuer that has such rating(s), or
(ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the investment adviser. Variable-rate instruments
acquired by a Master Portfolio will be rated at a level consistent with such
Master Portfolio's investment objective 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 investment adviser. See also the discussion of
variable- and floating-rate instruments in this Part B.
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 Master Portfolio, a Master 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 Master Portfolio to dispose of an instrument if
the issuer defaulted on its payment obligation or during periods when a Master
Portfolio is not entitled to exercise its demand rights, and a Master Portfolio
could, for these or other reasons, suffer a loss. A Master Portfolio may invest
in variable and floating rate instruments only when the investment adviser deems
the investment to involve minimal credit risk. If such instruments are not
rated, the investment 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.
Certain Master Portfolios also may purchase short-term participation interests
in loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Master Portfolio acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured and most impose restrictive covenants
which must be met by the borrower and which are generally more stringent than
the covenants available in publicly traded debt securities. However, interests
in some loans may not be secured, and the Master Portfolio will be exposed to a
risk of loss if the borrower defaults. Loan participations also may be purchased
by the Master Portfolio when the borrowing company is already in default. In
purchasing a loan participation, the Master Portfolio may have less protection
under the federal securities laws than it has in purchasing traditional types of
securities. The Master Portfolio's ability to assert its rights against the
borrower will also depend on the particular terms of the loan agreement among
the parties.
CONVERTIBLE SECURITIES
Certain Master Portfolios may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. All convertible securities purchased by the Master Portfolio
will be rated in the top two categories by an NRSRO or, if unrated, determined
by the investment adviser to be of comparable quality. Investments in
convertible securities can provide income through interest and dividend
payments, as well as, an opportunity for capital appreciation by virtue of their
conversion or exchange features.
The convertible securities in which a Master Portfolio may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends
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to increase as interest rates decline. In addition, because of the conversion
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the price of a convertible security tends to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the price of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income or, in the case of zero coupon securities, accretion of income
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion exchange features.
Convertible securities generally are subordinated to other similar debt
securities but not to non-convertible securities of the same issuer. Convertible
bonds, as corporate debt obligations, are senior in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation because
increases (or decreases) in the market value of such securities closely follow
the movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks because they usually are issued with short maturities
(15 years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
CORPORATE DEBT SECURITIES
Certain Master Portfolios may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each may also invest
in corporate debt securities of foreign issuers.
The corporate debt securities in which the Master Portfolios will invest will be
rated investment grade by at least one NRSRO (E.G., BBB or above by Standard &
Poor's Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Master Portfolios will be rated
in the top two categories by a NRSRO. Corporate debt securities that are not
rated may be purchased by such Master Portfolios if they are determined by the
Adviser to be of comparable quality under the direction of the Board of Trustees
of the Trust. If the rating of any corporate debt security held by a Master
Portfolio falls below such ratings or if the investment adviser determines that
an unrated corporate debt security is no longer of comparable quality, then such
security shall be disposed of in an orderly manner as quickly as possible. A
description of these ratings is attached as Schedule A to this Part B.
CUSTODIAL RECEIPTS
Certain Master Portfolios may also acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to
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principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities. Custodial receipts will be treated as illiquid securities.
Currency Swaps
Certain Master Portfolios also may enter into currency swaps for hedging
purposes and to seek to increase total return. In as much as swaps are entered
into for good faith hedging purposes or are offset by a segregated account as
described below, the Master Portfolio and the investment adviser believe that
swaps do not constitute senior securities as defined in the 1940 Act and,
accordingly, will not treat them as being subject to the Master Portfolio's
borrowing restrictions. The net amount of the excess, if any, of the Master
Portfolio's obligations over its entitlement with respect to each currency swap
will be accrued on a daily basis and an amount of cash or liquid high grade debt
securities (i.e., securities rated in one of the top three ratings categories by
an NRSRO, or, if unrated, deemed by the investment adviser to be of comparable
credit quality) having an aggregate net asset value at least equal to such
accrued excess will be maintained in a segregated account by the Master
Portfolio's custodian. The Master Portfolio will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by the
investment adviser.
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Master Portfolio relies on the other
party to complete the transaction. If the transaction is not completed, the
Master Portfolio may miss a price or yield considered to be advantageous. In
delayed delivery transactions, delivery of the securities occurs beyond normal
settlement periods, but a Master Portfolio would not pay for such securities or
start earning interest on them until they are delivered. However, when a Master
Portfolio purchases securities on such a delayed delivery basis, it immediately
assumes the risk of ownership, including the risk of price fluctuation. Failure
by a counterparty to deliver a security purchased on a delayed delivery basis
may result in a loss or missed opportunity to make an alternative investment.
Depending upon market conditions, a Master Portfolio's delayed delivery purchase
commitments could cause its net asset value to be more volatile, because such
securities may increase the amount by which the Master Portfolio's total assets,
including the value of when-issued and delayed delivery securities held by the
Master Portfolio, exceed its net assets.
DOLLAR ROLL TRANSACTIONS
Certain Master Portfolios may enter into "dollar roll" transactions, which
consist of the sale by a Master 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 Master 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 Master Portfolio agrees to buy a
security on a future date. If the broker/dealer to whom a Master Portfolio sells
the security becomes insolvent, the Master 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 Master
Portfolio is required to repurchase may be worth less than the security that the
Master Portfolio originally held, and the return earned by the Master Portfolio
with the proceeds of a dollar roll may not exceed transaction costs.
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 Master Portfolio's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Master Portfolio is able to purchase
them. Similarly, the Master 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 Master Portfolio, the
security that the Master 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 Master Portfolio's use of the cash that it receives from a dollar roll
will provide a return that exceeds borrowing costs.
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EQUITY SWAP CONTRACTS
Certain Master Portfolios may from time to time enter into 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 Master 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 Master Portfolio will agree to pay to the counterparty a
floating rate of interest (typically the London Inter Bank 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 return to a Master 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 Master Portfolio on
the notional amount. A Master Portfolio will only enter into Equity Swap
Contracts on a net basis, i.e., the two parties' obligations are netted out,
with the Master 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 Master
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 Master Portfolio will succeed in
pursuing contractual remedies. A Master Portfolio thus assumes the risk that it
may be delayed in or prevented from obtaining payments owed to it pursuant to
Equity Swap Contracts. A Master Portfolio will closely monitor the credit of
Equity Swap Contract counterparties in order to minimize this risk.
Certain Master Portfolios may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Master 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 Master Portfolio's equity market exposure
consistent with the Master Portfolio's objective. These positions are sometimes
referred to as Reverse Equity Swap Contracts.
Equity Swap Contracts will not be used to leverage a Master Portfolio. A Master
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 or S&P. Since the
SEC considers Equity Swap Contracts and Reverse Equity Swap Contracts to be
illiquid securities, a Master 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 Master Portfolio owns would
exceed 15% of the Master Portfolio's net assets.
The investment adviser does not believe that a Master Portfolio's obligations
under Equity Swap Contracts or Reverse Equity Swap Contracts are senior
securities and, accordingly, the Master Portfolio will not treat them as being
subject to its borrowing restrictions. However, the net amount of the excess, if
any, of a Master 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 Master Portfolio's custodian.
FOREIGN CURRENCY TRANSACTIONS
Certain Master 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 Master Portfolio may
purchase or sell forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Master Portfolio from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
Master Portfolio may also purchase and sell foreign currency futures contracts
and related options (see "Purchase and Sale of Currency Futures Contracts and
Related Options").
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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 conducted
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 Master Portfolio
will direct its 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 Master Portfolio's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Master 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 investment advisor 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 Master Portfolio's
securities denominated in such foreign currency, or when the investment advisor
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 Master Portfolio may, however, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the investment
advisor 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 Master Portfolio securities are denominated
(a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Master
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 Master 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 Master 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 Master Portfolio's commitments with respect to such contracts. As
an alternative to segregating all or part of such securities, the Master
Portfolio may purchase a call option permitting the Master 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 Master Portfolio may
purchase a put option permitting the Master 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.
The Master Portfolios are dollar-denominated mutual Master Portfolios 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 (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).
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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
or 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 Master Portfolio will incur brokerage fees when it purchases and
sells futures contracts. At the time such a purchase or sale is made, a Master
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 Master Portfolio
that 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. Certain Master
Portfolios may enter into transactions in futures contracts for the purpose of
hedging a relevant portion of their portfolios. A Master 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 Master
Portfolio. For example, a Master 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 Master Portfolio may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income Master Portfolio securities. A Master 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 Master 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 certain Master
Portfolios, which hold or intend to acquire long-term debt securities, is to
protect a Master 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 Master Portfolio, and interest rates were expected to increase, the
Master 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 Master Portfolio. If interest rates did
increase, the value of the debt securities in the Master Portfolio would
decline, but the value of the futures contracts to the Master Portfolio would
increase at approximately the same rate thereby keeping the net asset value of
the Master Portfolio from declining as much as it otherwise would have. When a
Master Portfolio is not
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fully invested and a decline in interest rates is anticipated, which would
increase the cost of fixed income securities that the Master 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 Master 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 Master
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 Master 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 Master 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 Master Portfolio to act in
anticipation of such an interest rate decline without having to sell its
portfolio securities. To the extent a Master Portfolio enters into futures
contracts for this purpose, the segregated assets maintained by a Master
Portfolio will consist of cash, cash equivalents or high quality debt securities
of the Master 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 Master Portfolio with
respect to such futures contracts.
STOCK INDEX FUTURES CONTRACTS. Certain Master 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 Master 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 Master 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 Master Portfolio may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Master 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, a Master Portfolio's futures positions would be closed
out. A Master 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 purchase 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.
Certain Master Portfolios may purchase put options on futures contracts in which
such Master 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
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an interest rate decline when they are not fully invested. A Master 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. Certain Master 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 Master 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 Master 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 Master 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 Master Portfolio would receive a fee, or a "premium," for the
writing of the option. For example, where the Master 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 Master Portfolio would pay 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 Master Portfolio could sustain a loss on the transaction that may not be
offset by the premium received. In addition, a Master 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 investment advisor may seek to increase the
current return of certain Master Portfolios 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 investment advisor may at times seek to
hedge against a decline in the value of securities included in the Master
Portfolio or an increase in the price of securities that it plans to purchase
for the Master Portfolio. Expenses and losses incurred as a result of such
hedging strategies will reduce the Master Portfolio's current return. A Master
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
Master 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 Master Portfolio
will not make these investments.
The ability of a Master Portfolio to engage in the options and futures
strategies described below 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 Master Portfolio will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, a Master Portfolio's
ability to engage in options and futures transactions may be limited by tax
considerations. Although a Master 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 Master Portfolio will not engage in options and futures
transactions for leveraging purposes.
WRITING COVERED OPTIONS ON SECURITIES. Certain Master Portfolios may write
covered call options and covered put options on securities in which it is
permitted to invest from time to time as the investment advisor determines is
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appropriate in seeking to attain its objective. Call options written by a Master
Portfolio give the holder the right to buy the underlying securities from a
Master Portfolio at a stated exercise price; put options give the holder the
right to sell the underlying security to the Master Portfolio at a stated price.
A Master Portfolio may write only covered options, which means that, so long as
the Master 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 Master 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 Master Portfolio may also write
combinations of covered puts and calls on the same underlying security.
A Master Portfolio will receive a premium from writing a put or call option,
which increases the Master 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 Master 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, the Master 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 Master 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 Master 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 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 Master Portfolio.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Master 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 Master 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 Master 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 Master Portfolio may also purchase call options to hedge against an increase
in prices of securities that it wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Master 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 Master
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 Master 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
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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 investment adviser expects general stock market prices to rise, a Master
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 wants ultimately 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 a Master Portfolio's index option or futures contract resulting from the
increase in the index. If, on the other hand, the Investment adviser expects
general stock market prices to decline, a Master 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 in a Master Portfolio
may also be expected to decline, but that decrease would be offset in part by
the increase in the value of the Master Portfolio's position in such put option
or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Master 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 Master 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 Master Portfolio
will fall, thus reducing the net asset value of the Master 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 Master 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 Master
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 a
Master Portfolio's investments that are being hedged. While a Master 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
Master Portfolio may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Master 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 Master
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 Master Portfolio intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In order to
hedge its portfolio and to protect it against possible variations in foreign
exchange rates pending the settlement of securities transactions, a Master
Portfolio may buy or sell currency futures contracts and related options. If a
fall in exchange rates for a particular currency is anticipated, a Master
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 Master 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 Master 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 Master Portfolio will be covered.
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A currency futures contract sale creates an obligation by a Master Portfolio, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Master 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 Master Portfolio will write (sell) only covered put and call options on
currency futures. This means that a Master 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 Master
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 a Master Portfolio in cash, 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 Master
Portfolio falls below 100% of the market value of the call written by the Master
Portfolio, a Master Portfolio will so segregate an amount of cash, Treasury
bills or other high grade short-term obligations equal in value to the
difference. Alternatively, a Master Portfolio may cover the call option through
segregating with the custodian 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 a Master Portfolio. In the case of put options on
currency futures written by the Master Portfolio, the Master Portfolio will hold
the aggregate exercise price in cash, 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 a Master Portfolio in
cash, 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 Master Portfolio
falls below 100% of the market value of the put options written by the Master
Portfolio, a Master Portfolio will so segregate an amount of cash, 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 Master
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 Master 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 Securities and Exchange
Commission ("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
Master Portfolio's net assets. The Investment adviser intends to limit a Master
Portfolio's writing of over-the-counter options in accordance with the following
procedure. Each Master 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 Master Portfolio has in
place with such primary dealers will provide that the Master 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 Master 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
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option is written out-of-the-money. A Master Portfolio will treat all or a part
of the formula price as illiquid for purposes of any limitation on illiquid
securities imposed by the SEC staff.
RISK FACTORS ASSOCIATED WITH FUTURES AND OPTIONS TRANSACTIONS
The effective use of options and futures strategies depends on, among other
things, a Master Portfolio's ability to terminate options and futures positions
at times when its the investment adviser deems it desirable to do so. Although a
Master Portfolio will not enter into an option or futures position unless the
investment adviser believes that a liquid secondary market exists for such
option or future, there is no assurance that a Master Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price. A
Master 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 Master Portfolio may purchase and
sell options in the over-the-counter market. A Master 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 Master 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.
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 Master Portfolio diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the investment 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 Master
Portfolios' futures and options transactions.
RISK OF IMPERFECT CORRELATION. A Master Portfolio's ability effectively to 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 Master
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 Master Portfolio might not be successful and the Master 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 Master Portfolio securities. In such
instances, a Master 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 Master 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 Master Portfolio
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will not be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Master Portfolio.
A Master Portfolio will purchase or sell futures contracts or options only if,
in the investment 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 Master Portfolio for the
hedge to be effective. There can be no assurance that the investment 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 Master 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 Master 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 a Master Portfolio, which could require
the Master Portfolio to purchase or sell the instrument 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 Master 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
investment adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Master Portfolio's overall performance may be
poorer than if it had not entered into any such contract. For example, if a
Master 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 Master 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 Master 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 investment adviser does not believe that these
trading and position limits will have an adverse impact on the hedging
strategies regarding the Master Portfolios' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of the CFTC
require that the Master 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 Master
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 the Master Portfolio, and accrued profits on such
positions. In addition, a
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Master 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 Master Portfolio's total assets.
When a Master Portfolio purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Master
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 Master Portfolios' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a
Master 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 Master
Portfolios may also further 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.
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 Master 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 Master 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 Master Portfolio will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the investment
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 Master 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.
INSURED MUNICIPAL SECURITIES
Certain of the Municipal Securities held by the Master Portfolios may be insured
at the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which certain Master Portfolios may enter
are interest rate swaps and the purchase or sale of related caps and floors. The
Master 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 the Master Portfolio
anticipates purchasing at a later date. A Master Portfolio intends 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 the Master Portfolio may be obligated to
pay. Interest rate swaps involve the exchange by a Master 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
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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 Master 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 Master 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
investment adviser and the Master Portfolio believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Master 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 Standard &
Poor's Corporation or Moody's Investors Service, Inc. or has an equivalent
rating from a NRSRO, or is determined to be of equivalent credit quality by the
Investment adviser. If there is a default by the counterparty, the Master
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 Master 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 Master 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 in a Master Portfolio's portfolio, with a commensurate effect on
the value of the Master Portfolio's shares. Therefore, an investment in the
Master Portfolio should not be considered as a complete investment program and
may not be appropriate for all investors.
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 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 investment
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 Investment 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 may buyers. Each Master 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
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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 Master 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
Master 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
Master Portfolio. If an issuer exercises these rights during periods of
declining interest rates, a Master Portfolio may have to replace the security
with a lower yielding security, thus resulting in a decreased return to a Master
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.
MUNICIPAL SECURITIES
GENERAL. The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by a Master Portfolio are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating- rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Master Portfolio, a Master Portfolio may demand
payment of the principal and accrued interest on the instrument or may resell it
to a third party as specified in the instruments. The absence of an active
secondary market, however, could make it difficult for a Master Portfolio to
dispose of the instrument if the issuer defaulted on its payment obligation or
during periods the Master Portfolio is not entitled to exercise its demand
rights, and the Master Portfolio could, for these or other reasons, suffer a
loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Master Portfolio will be determined by the investment adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Master Portfolio will require that an issuer's
obligation to pay the principal of the note may be backed by an unconditional
bank letter or line of credit, guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
investment adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Master Portfolio. Frequently, privately
arranged loans have variable interest rates and may be backed by a bank letter
of credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand by
the lender. Such loans made by a Master Portfolio may have a demand provision
permitting the Master Portfolio to require payment within seven days.
Participations in such loans, however, may not have such a demand provision and
may not be otherwise marketable.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Master Portfolios' ability to recover under the
lease in the event of non-appropriation or default will be limited solely to the
repossession of the leased property in the event foreclosure might prove
difficult.
The Master Portfolios will not invest more than 5% of their total investment
assets in lease obligations that contain "non-appropriation" clauses where (1)
the nature of the leased equipment or property is such that its ownership or use
is essential to a governmental function of the municipality, (2) the lease
payments will commence amortization of principal at an early date resulting in
an average life of seven years or less for the lease obligation, (3) appropriate
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not
appropriated, (4) the lease obligor has maintained good market acceptability in
the past, (5) the investment is of a size that will be attractive to
institutional investors, and (6) the underlying leased equipment has elements of
probability and/or use that enhance its marketability in the event foreclosure
on the underlying equipment were ever required. The Master Portfolios have not
imposed any percentage limitations with respect to their investment in lease
obligations not subject to the "non-appropriation" risk. To the extent municipal
leases are illiquid, they will be subject to each Master Portfolio's limitation
on investments in illiquid securities. Recovery of an investment in any such
loan that is illiquid and payable on demand may depend on the ability of the
municipal borrower to meet an obligation for full repayment of principal and
payment of accrued interest within the demand period, normally seven days or
less (unless a Master Portfolio determines that a particular loan issue, unlike
most such loans, has a readily available market). As it deems appropriate, the
investment adviser will establish procedures to monitor the credit standing of
each such municipal borrower, including its ability to meet contractual payment
obligations.
In evaluating the credit quality of a municipal lease obligation and determining
whether such lease obligation will be considered "liquid," the investment
adviser for each Master Portfolio will consider: (1) whether the lease can be
canceled; (2) what assurance there is that the assets represented by the lease
can be sold; (3) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (4) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of non-appropriation"); and
(5) the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Master Portfolio's limitation on the purchase of illiquid
securities. Municipal leases and participating interests therein, which may take
the form of a lease or an installment sales contract, are issued by state and
local governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
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In addition, certain of the Master Portfolios may acquire "stand-by commitments"
from banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Master Portfolio's option specified Municipal Securities at a specified price.
The Master Portfolios will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes.
Although the Master Portfolios do not presently intend to do so on a regular
basis, each may invest more than 25% of its total assets in municipal securities
the interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the investment adviser. To the
extent that more than 25% of a Master Portfolio's total assets are invested in
Municipal Securities that are payable from the revenues of similar projects, a
Master Portfolio will be subject to the peculiar risks presented by such
projects to a greater extent than it would be if its assets were not so
concentrated.
There are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications, and the yields
on Municipal Securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of
nationally recognized statistical rating organizations represent their opinions
as to the quality of Municipal Securities. It should be emphasized, however,
that these ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate, and rating may have
different yields while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Master Portfolio, an issue of Municipal Securities may cease to be rated,
or its rating may be reduced below the minimum rating required for purchase by
that Master Portfolio. The investment adviser will consider such an event in
determining whether a Master Portfolio should continue to hold the obligation.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular Federal income tax or state income tax are
rendered by counsel to the issuer or bond counsel at the time of issuance.
Neither the Master Portfolios nor the investment adviser will review the
proceedings relating to the issuance of Municipal Securities or the bases for
opinions relating to the validity of such issuance.
The payment of principal and interest on most securities purchased by a Master
Portfolio will depend upon the ability of the issuers to meet their obligations.
Each state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in Part A and Part
B. The non-governmental user of facilities financed by private activity bonds is
also considered to be an "issuer." An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Securities may be materially adversely affected by litigation or other
conditions.
Certain types of Municipal Securities (private activity bonds) have been or are
issued to obtain funds to provide, among other things, privately operated
housing facilities, pollution control facilities, convention or trade show
facilities, mass transit, airport, port or parking facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Such proposals, while pending or if enacted,
might materially and adversely affect the availability of Municipal Securities
for investment by one of these Master Portfolios and the liquidity and value of
such portfolios. In such an event, a Master Portfolio impacted would re-evaluate
its investment objective and policies and consider possible changes in its
structure or possible dissolution.
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OPTIONS ON CURRENCIES
Certain Master Portfolios may purchase and sell options on currencies to hedge
the value of securities the Master Portfolio holds or intends to buy. Options on
foreign currencies may be traded on U.S. and foreign exchanges or
over-the-counter.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, certain Master Portfolios may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Master Portfolio currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Master Portfolio
or by the Trust as a whole. As a shareholder of another investment company, a
Master Portfolio would bear, along with other shareholders, its pro rata portion
of the other investment company's expenses, including investment advisory fees.
These expenses would be in addition to the investment advisory and other
expenses that a Master Portfolio bears in connection with its own operations.
The investment adviser has agreed to remit to the respective investing Master
Portfolio fees payable to it under its respective Investment Advisory Agreement
with an affiliated money market fund to the extent such fees are based upon the
investing Master Portfolio's assets invested in shares of the affiliated money
market fund.
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
Internal Revenue Code of 1986, as amended.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Master
Portfolio) obtains a security and simultaneously commits to return the security
to the seller (a member bank of the Federal Reserve System or recognized
securities dealer) at an agreed upon price (including principal and interest) on
an agreed upon date within a number of days (usually not more than seven) from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The repurchase agreements entered into by the Master Portfolios will provide
that the underlying security at all times shall have a value at least equal to
102% of the resale price stated in the agreement (the investment adviser, the
Custodian or an agent of either such party monitors compliance with this
requirement). Under all repurchase agreements entered into by the Master
Portfolios, the Master Portfolios' custodian or its agent must take possession
of the underlying collateral. However, if the seller defaults, the Master
Portfolios could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Master
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Portfolios may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Master Portfolios are
treated as an unsecured creditor and required to return the underlying security
to the seller's estate. Repurchase agreements are a permissible investment for
all Master Portfolios.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
absent an exemption from registration. Certain of the permitted investments of
the Master Portfolios may be restricted securities and the investment adviser
may invest in restricted securities based on guidelines which are the
responsibility of and are periodically reviewed by the Board of Trustees. Under
these guidelines, the investment adviser will consider the frequency of trades
and quotes for the security, the number of dealers in, and potential purchasers
for, the securities, dealer undertakings to make a market in the security, and
the nature of the security and of the marketplace trades. In purchasing such
restricted securities, the investment adviser intends to purchase securities
that are exempt from registration under Rule 144A and Section 4(2) promulgated
under the 1933 Act. The Master Portfolios may purchase liquid and illiquid
restricted securities.
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REVERSE REPURCHASE AGREEMENTS
At the time a Master 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 Master 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 Master 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 Master Portfolios' obligation to repurchase the
securities. Reverse repurchase agreements are speculative techniques involving
leverage, and are subject to asset coverage requirements if the Master
Portfolios do not establish and maintain a segregated account (as described
above). In addition, some or all of the proceeds received by a Master 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 Master
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 Master Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Master Portfolios may not establish a segregated
account when the investment adviser believes it is not in the best interests of
the Master Portfolios to do so. In this case, such reverse repurchase agreements
will be considered borrowings subject to the asset coverage described above.
SECURITIES LENDING
To increase return on portfolio securities, all the Master 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. 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 Master Portfolio involved exceeds
one-third of the value of its total assets taken at fair market value. A Master
Portfolio will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities, including cash collateral received for securities loans.
However, a Master Portfolio will normally pay lending fees to such
broker/dealers and related expenses from the interest earned on investment
collateral. Any loan may be terminated by either party upon reasonable notice to
the other party.
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 investment 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 Master Portfolio is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Master Portfolio of securities identical to
the transferred securities upon termination of the loan.
SHORT SALES
Certain Master Portfolios may from time to time enter into short sales
transactions. A Master Portfolio will not make short sales of securities nor
maintain a short position unless at all times when a short position is open,
such Master 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 Master Portfolio for the purpose of deferring
recognition of gain or loss for federal income tax purposes.
SPECIAL SITUATIONS
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Certain Master Portfolios may invest in "special situations." A special
situation arises when, in the opinion of the investment 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 large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
STAND-BY COMMITMENTS
Certain Master 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 Master Portfolio, at a Master Portfolio's
option, specified Municipal Securities at a specified price. Stand-by
commitments are exercisable by a Master Portfolio at any time before the
maturity of the underlying Municipal Securities, and may be sold, transferred,
or assigned by a Master Portfolio only with the underlying instruments.
The amount payable to a Master Portfolio upon its exercise of a stand-by
commitment will normally be (i) the Master Portfolio's acquisition cost of the
Municipal Securities (excluding any accrued interest which a Master Portfolio
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Master Portfolio
owned the securities, plus (ii) all interest accrued on the securities since the
last interest payment date during that period. Under normal market conditions,
in determining net asset value a Master Portfolio values the underlying
Municipal Securities on an amortized cost basis. Accordingly, the amount payable
by a dealer upon exercise of a stand-by commitment will normally be
substantially the same as the portfolio value of the underlying Municipal
Securities.
A Master Portfolio's right to exercise stand-by commitments will be
unconditional and unqualified. A stand-by commitment will not be transferable by
a Master Portfolio, although the Master Portfolio could sell the underlying
Municipal Securities to a third party at any time. Until a Master Portfolio
exercises its stand-by commitment, it owns the securities in its portfolio which
are subject to the stand-by commitment.
The Master 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 Master 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 Master 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 Master Portfolio. The Master Portfolios will not
acquire a stand-by commitment unless immediately after the acquisition not more
than 5% of the Master Portfolios' total assets will be subject to a demand
feature, or in stand-by commitments, with the same institution.
Each Master Portfolio intends to enter into stand-by commitments only with banks
and broker/dealers which, in the investment adviser's opinion, present minimal
credit risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the investment adviser will review periodically the issuer's assets,
liabilities, contingent claims, and other relevant financial information.
The Master 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 Master Portfolio will be
valued at zero in determining net asset value. A Master 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 the Master 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.
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STRIPPED SECURITIES
Certain Master Portfolios may purchase stripped securities issued or guaranteed
by the U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Master Portfolio may purchase stripped mortgage-backed
securities ("SMBS") issued by the U.S. Government (or a U.S. Government agency
or instrumentality) or by private issuers such as banks and other institutions.
If the underlying obligations experience greater than anticipated prepayments of
principal, the Master Portfolio may fail to fully recover its initial
investment. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be full recovered. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Trust's Board of Trustees
if they can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of the Master Portfolio's
net asset value.
Although stripped securities may not pay interest to holders prior to maturity,
Federal income tax regulations require a Master Portfolio to recognize as
interest income a portion of the bond's discount each year. This income must
then be distributed to interestholders along with other income earned by the
Master Portfolio. To the extent that any interestholders in the Master Portfolio
elect to receive their dividends in cash rather than reinvest such dividends in
additional Master Portfolio interests, cash to make these distributions will
have to be provided from the assets of the Master Portfolio or other sources
such as proceeds of sales of Master Portfolio interests and/or sales of
portfolio securities. In such cases, the Master Portfolio will not be able to
purchase additional income producing securities with cash used to make such
distributions and its current income may ultimately be reduced as a result.
TAX-EXEMPT INSTRUMENTS
Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Master Portfolio can demand
payment of the obligation at all times or at stipulated dates on short notice
(not to exceed 30 days) at par plus accrued interest. Such obligations are
frequently secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying credit or of the bank, as the
case may be, must, in the investment adviser's opinion be comparable to the
long-term bond or commercial paper ratings discussed in Part A. The investment
adviser will monitor the earnings power, cash flow and liquidity ratios of the
issuers of such instruments and the ability of an issuer of a demand instrument
to pay principal and interest on demand. The investment adviser may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the long-term bond or commercial paper ratings discussed in Part
A, including municipal lease obligations and participation interests in
municipal securities (such as industrial development bonds and municipal lease
purchase payments).
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Master Portfolio limits its
investments in domestic bank obligations to banks having total assets in excess
of $1 billion and subject to regulation by the U.S. Government. Each Master
Portfolio may also invest in certificates of deposit issued by members of the
Federal Deposit Insurance Corporation ("FDIC") having total assets of less than
$1 billion, provided that the Master Portfolio will at no time own more than
$100,000 principal amount of certificates of deposit (or any higher principal
amount which in the future may be fully covered by FDIC insurance) of any one of
those issuers. Fixed time deposits are obligations which are payable at a stated
maturity date and bear a fixed rate of
30
<PAGE>
interest. Generally, fixed time deposits may be withdrawn on demand by a Master
Portfolio, but they may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
Although fixed time deposits do not have a market, there are no contractual
restrictions on a Master Portfolio's right to transfer a beneficial interest in
the deposit to a third party.
Each Master Portfolio limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the investment adviser, pursuant to
the established by the Board of Trustees of the Trust, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Master Portfolio. These obligations may be general obligations of the parent
bank in addition to the issuing branch or subsidiary, but the parent bank's
obligations may be limited by the terms of the specific obligation or by
governmental regulation. Each Master Portfolio also limits its investments in
foreign bank obligations to banks, branches and subsidiaries located in Western
Europe (United Kingdom, France, Germany, Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. Each Master Portfolio will limit its investment
in securities of foreign banks to not more than 20% of total assets at the time
of investment.
Each Master Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of the total assets
of the Master Portfolio.
U.S. GOVERNMENT OBLIGATIONS
Each Master Portfolio may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Master Portfolios
include, in addition to U.S. Treasury bonds, notes and bills, the obligations of
the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks,
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. Obligations guaranteed as to principal or interest by
the U.S. Government, its agencies, authorities or instrumentalities are deemed
to include: (a) securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. Government, its
agencies, authorities or instrumentalities and (b) participations in loans made
to foreign governments or their agencies that are so guaranteed. The secondary
market for certain of these participations is limited. If such participations
are illiquid they will not be purchased.
U.S. Government obligations include principal and interest components of
securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a Master
Portfolio to provide cash, securities or currencies to complete such
transactions will entail that Master Portfolio to either segregate assets in an
account with, or on the books of, the Trust's custodian, or otherwise "covering"
the transaction as described below. For example, a call option written by a
Master Portfolio will require the Master Portfolio to hold the securities
subject to the call (or securities convertible into the needed securities
without additional consideration) or liquid assets sufficient to meet the
obligation by purchasing and delivering the securities if the call is exercised.
A call option written on an index will require that Master Portfolio to have
portfolio securities that correlate with the index. A put
31
<PAGE>
option written by a Master Portfolio also will require that Master Portfolio to
have available assets sufficient to purchase the securities the Master Portfolio
would be obligated to buy if the put is exercised.
A forward foreign currency contract that obligates a Master Portfolio to provide
currencies will require the Master Portfolio to hold currencies or liquid
securities denominated in a foreign currency which will equal the Master
Portfolio's obligations. Such a contract requiring the purchase of currencies
also requires segregation.
Unless a segregated account consists of the securities, cash or currencies that
are the subject of the obligation, a Master Portfolio will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Master Portfolio could own securities substantially
replicating the movement of the particular index.
In the case of a futures contract, a Master Portfolio must deposit initial
margin and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Master
Portfolio to deposit margin to the extent necessary to meet the Master
Portfolio's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Master Portfolio may enter
into off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Master Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by that Master Portfolio. Moreover, instead of
segregating assets if a Master Portfolio held a futures or forward contract, it
could purchase a put option on the same futures or forward contract with a
strike price as high or higher than the price of the contract held. Of course,
the off-setting transaction must terminate at the time of or after the primary
transaction.
VARIABLE AMOUNT MASTER DEMAND NOTES
Commercial paper which may be purchased by the Master Portfolios includes
variable-amount master demand notes which may or may not be backed by bank
letters of credit. These notes permit the investment of fluctuating amounts at
varying market rates of interest pursuant to direct arrangements between the
Trust, as lender, and the borrower. Such notes provide that the interest rate on
the amount outstanding varies on a periodic basis (E.G. daily, weekly or
monthly) depending upon a stated short-term interest rate index. Both the lender
and the borrower may have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable-amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
investment adviser will monitor on an ongoing basis the earnings power, cash
flow, and liquidity ratios of the issuers of such instruments and will similarly
monitor the ability of an issuer of a demand instrument to pay principal and
interest on demand. In addition, variable-amount master demand notes must meet
the demand feature ratings and notice requirements set forth above.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Certain Master Portfolios may purchase variable-rate and floating rate
obligations. If such instrument is not rated, the investment 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
Master Portfolio can recover payment of principal as specified in the
instrument.
32
<PAGE>
The variable- and-floating rate demand instruments that the Master Portfolios
may purchase include participations in Municipal Securities purchased from and
owned by financial institutions, primarily banks. Participation interests
provide a Master 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 investment adviser has determined meets the prescribed
quality standards for the Master 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.
WARRANTS
Certain Master Portfolios are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
A Master Portfolio may agree to purchase securities on a when-issued basis or
enter into a forward commitment to purchase securities. When a Master 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 Master 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 Master
Portfolio's commitment. Because a Master Portfolio will segregate cash or liquid
assets to satisfy its purchase commitments in the manner described, the Master
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 Master Portfolio's custodian will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding.
A Master 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 Master 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 Master Portfolio on the settlement date. In
these cases the Master Portfolio may realize a capital gain or loss.
When a Master 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 Master 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 Master
Portfolio starting on the date the Master Portfolio agrees to purchase the
securities. The Master 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 Master Portfolio makes a forward commitment to sell
securities it owns, the proceeds to be received upon settlement are included in
the Master Portfolio's assets. Fluctuations in the value of the underlying
securities are not reflected in the Master Portfolio's net asset value as long
as the commitment remains in effect.
33
<PAGE>
PORTFOLIO TURNOVER
Generally, the Master Portfolios will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. If a Master Portfolio's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the
interestholders.
ITEM 13. MANAGEMENT OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the state of Delaware. The Trustees and the
officers of the Trust and their principal occupations for the last five years
are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C> <C>
Edmund L. Benson, III, 62 Trustee Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance);
728 East Main Street Trustee, Nations Institutional
Suite 400 Reserves, Nations Fund Trust,
Richmond, VA 23219 Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Fund, Inc.
James Ermer, 56 Trustee Retired; Formerly, (Senior Vice
13705 Hickory Nut Point President- Finance, CSX Corporation
Midlothian, VA 23112 (transportation and natural
resources); Director, National Mine
Service; Director, Lawyers Title
Corporation; Trustee, Nations
Institutional Reserves, Nations Fund
Trust, Nations Annuity Trust and
Nations Master Investment Trust;
Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.
William H. Grigg, 66 Trustee Since June 1997, Chairman Emeritus; June
Duke Power Co. 1997 to April 1994, Chairman and Chief
422 South Church Street Executive Officer; November 1991 to
PB04G April 1994, Vice Chairman, Duke Power
Charlotte, NC 28242-0001 Co.; from April 1988 to November 1991,
Executive Vice President Customer Group,
Duke Power Co.; Director, 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 Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.; Trustee,
Nations Institutional
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C> <C>
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.
Thomas F. Keller, 67 Trustee R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27706 University; Director, LADD
Furniture, Inc.; Director, Wendy's and
Mentor Funds; Director, 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 Fund
Portfolios, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Nations
Institutional Reserves, Nations Fund
Trust, Nations Annuity Trust and Nations
Master Investment Trust.
Carl E. Mundy, Jr., 64 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July 1995;
Alexandria, VA 23309 Commanding General, Marine Forces
Atlantic, from June 1990 to June 1991;
Director, Nations Fund, Inc., Nations
Fund Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee, Nations
Institutional Reserves, Nations Master
Portfolio Trust, Nations Annuity Trust
and Nations Master Investment Trust.
James B. Sommers, 60* Trustee President, NationsBank Trust, from
237 Cherokee Road January 1992 to September 1996;
Charlotte, NC 28207 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
Hospital Authority; Director, Nations
Fund, Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional Reserves,
Nations Master Portfolio Trust, Nations
Annuity Trust and Nations Master
Investment Trust.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C> <C>
A. Max Walker, 77* President, Trustee and Chairman Financial consultant; Formerly,
4580 Windsor Gate Court 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 Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.;
President and Chairman of the Board of
Trustees, Nations Institutional
Reserves, Nations Fund Trust, Nations
Annuity Trust and Nations Master
Investment Trust.
Charles B. Walker, 60 Trustee Since 1989, Director, Executive Vice
Ethyl Corporation President, Chief Financial Officer
P.O. Box 2189 and Treasurer, Ethyl Corporation
330 South Fourth Street (chemicals, plastics, and aluminum
Richmond, VA 23217 manufacturing); since 1994, Vice
Chairman, Ethyl Corporation and Vice
Chairman, Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc., Nations
Fund Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee, Nations
Institutional Reserves, Nations Fund
Trust, Nations Annuity Trust and Nations
Master Investment Trust.
Thomas S. Word, Jr., 60* Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle Boothe (law); Director, Vaughan
& Boothe Bassett Furniture Company, Director
One James Center VB Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C> <C>
Richard H. Blank, Jr., 42 Secretary and Treasurer Since 1999, Senior Vice President of
Stephens Inc. Stephens; 1994 to 1999, Vice
111 Center Street President of Mutual Fund Services,
Suite 300 Stephens Inc.; 1990 to 1994, Manager
Little Rock, AR 72201 Mutual Fund Services, Stephens Inc.;
1983 to 1990, Associate in Corporate
Finance Department, Stephens Inc.;
Secretary and Treasurer, Nations
Institutional Reserves, Nations Fund
Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Annuity Trust
Nations Master Investment Trust and
Nations LifeGoal Funds, Inc.
Michael W. Nolte, 38 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
James E. Banks, 42 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
111 Center Street Corporate Counsel,
Suite 300 Federated Investors; from
Little Rock, AR 72201 1991 to 1993, Staff
Attorney, Securities and
Exchange Commission from
1988 to 1991
</TABLE>
- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are consider ed
"interested persons" of the Trust for purposes of the 1940 Act.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Master Portfolios, Inc. and a Trustee of
Nations Fund Trust, Nations Annuity Trust and Nations Institutional Reserves,
each a registered investment company that is part of the Nations Funds Family.
Richard H. Blank, Jr., Steven Levy, Michael W. Nolte and James E. Banks also are
officers of Nations Fund, Inc.; Nations Fund Portfolios, Inc.; Nations LifeGoal
Funds, Inc.; Nations Fund Trust; Nations Annuity Trust and Nations Institutional
Reserves.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Master 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 each telephonic Board meeting attended. 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, director, or employee
of Bank of America or its affiliates serves as an officer, Trustee, or employee
of the Trust. The Trustees and officers of the Nations Funds own less than 1% of
the shares of the Trust.
37
<PAGE>
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 Master Portfolio or
(ii) was being purchased or sold by a Master 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 company in a control relationship with the
Trust) who, in the course of his/her regular duties, obtains information about,
or makes recommendations with respect to, the purchase or sale of securities by
the Trust, and (iii) any natural person in a control relationship with the Trust
who obtains information concerning recommendations made to the Trust regarding
the purchase or sale of securities. 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 Master 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 Investment 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 Master Portfolios
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate Trustee's fees
payable by the Master 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 Master 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 Master 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. 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 or 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 his or her 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 Master Portfolios from which they are deferring compensation.
38
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED ANNUAL
COMPENSATION BENEFITS ACCRUED BENEFITS UPON TOTAL COMPENSATION
NAME OF PERSON FROM AS PART OF FUND RETIREMENT FROM REGISTRANT
POSITION (1) REGISTRANT (2) EXPENSES PLAN & FUND COMPLEX (3) (4)
- ------------ --------------- --------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Edmund L. Benson, III $9,500 $11,111.11 $35,000 $75,376 (50% Def'd)
Trustee
James Ermer $7,500 $11,111.11 $35,000 $62,625
Trustee
William H. Grigg $9,500 $11,111.11 $35,000 $89,625 (100% Def'd)
Trustee
Thomas F. Keller $9,500 $11,111.11 $35,000 $93,625 (100% Def'd)
Trustee
A. Max Walker $11,500 $11,111.11 $40,000 $108,125
Chairman of the Board
Charles B. Walker $9,500 $11,111.11 $35,000 $74,625
Trustee
Thomas S. Word $9,500 $11,111.11 $35,000 $76,125 (100% Def'd)
Trustee
James P. Sommers $9,500 $11,111.11 $40,000 $70,625
Trustee
Carl E. Mundy, Jr. $9,000 $11,111.11 $35,000 $70,127
------ ---------- ------- -------
Trustee
$85,000 $100,000 $320,000 $720,878
======= ======== ======== ========
</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) For the current fiscal year and estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Master Portfolio of the Trust, plus (ii) a fee
of $1,000 for attendance at each in-person board meeting attended and $500
for each telephonic board meeting attended. The Trust also reimburses
expenses incurred by the Trustees in attending such meetings.
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from ten
investment companies, including Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Fund Trust, Nations Annuity
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Trust, Nations Master Investment Trust and Nations LifeGoal Funds, Inc.,
that are deemed to be part of the Nations Fund "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 Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Fund Trust, Nations Annuity Trust
and Nations LifeGoal Funds, Inc. deemed to be part of the Nations Funds
complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III $34,563; William H. Grigg $65,125; Thomas F. Keller $69,125;
and Thomas S. Word $69,125.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 20, 1999, Stephens Inc. ("Stephens") owned all of the outstanding
voting securities of the Master Portfolios. As such Stephens could be considered
a "controlling person" of the Master Portfolios for purposes of the 1940 Act.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The Adviser and Sub-Advisers: NationsBanc Advisors, Inc. ("NBAI") serves as
investment adviser to the Master Portfolios, pursuant to an investment advisory
agreement (the "Investment Advisory Agreement") dated May 21, 1999.
In addition, TradeStreet serves as the investment sub-adviser to the Nations
Intermediate Bond Master Portfolio pursuant to a sub-advisory agreement dated
May 21, 1999. Chicago Equity serves as investment sub-adviser to Nations Blue
Chip Master Portfolio pursuant to a sub-advisory agreement dated May 21, 1999.
Marsico Capital Management, LLC ("Marsico Capital") serves as the investment
sub-adviser to Nations Marsico Focused Equities Master Portfolio and Nations
Marsico Growth & Income Master Portfolio pursuant to a sub-advisory agreement
dated May 21, 1999. Gartmore is a co-investment sub-adviser to Nations
International Equity Master Portfolio along with INVESCO Global Asset Management
(N.A.) Inc. ("INVESCO") and Putnam Investment Management, Inc. ("Putnam")
pursuant to a sub-advisory agreement (collectively the "Sub-Advisory
Agreements"). As used herein, "Adviser" shall mean NBAI, TradeStreet, Chicago
Equity, Gartmore, INVESCO, Putnam and/or Marsico Capital as the context may
require.
NBAI, TradeStreet and Chicago Equity are each wholly owned subsidiaries of
NationsBank, N.A., which in turn is a wholly owned banking subsidiary of
BankAmerica Corporation, a bank holding company organized as a Delaware
corporation. Prior to April 10, 1996, the predecessor to Gartmore, Nations
Gartmore Investment Management ("Nations Gartmore"), provided sub-advisory
services to NBAI and Nations International Equity Fund. Nations Gartmore was a
joint venture structured as a general partnership between NB Partner Corp. and
Gartmore U.S. Limited, an indirectly wholly owned subsidiary of Gartmore
Investment Management plc ("Gartmore plc"). On April 10, 1996, National
Westminster Bank plc and affiliated parties (collectively, "NatWest") purchased
100% of the equity of Gartmore plc from Compagnie de Suez, S.A. and affiliated
entities (collectively, "Compagnie de Suez") and other shareholders through a
two-part transaction involving (1) the direct purchase from Compagnie de Suez of
its indirect subsidiary Indosuez UK Asset Management Limited, which held 75% of
the outstanding voting shares of Gartmore plc; and (2) the acquisition of the
remaining portion of Gartmore plc's shares held by public shareholders through a
tender offer. This acquisition resulted in the change of control of Nations
Gartmore and the creation of a successor entity, Gartmore.
Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico Capital.
Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager. Marsico Capital is an
independent subsidiary of NationsBank and its affiliates. The principal offices
of Marsico Captial is 1200 17th Street, Suite 1300, Denver, CO 80202.
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The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, Trustees,
employees or agents, NBAI 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.
The Investment Advisory Agreement became effective with respect to a Master
Portfolio when approved by the Trustees of the Trust, and thereafter continues
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
Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Trust's 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 Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Master 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 Master Portfolio) or by
NBAI on 60 days' written notice.
The Sub-Advisory Agreements provide that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet, Chicago Equity, Gartmore, INVESCO, Putnam
and/or Marsico Capital or any of their officers, Trustees, employees or agents,
TradeStreet, Chicago Equity, Gartmore, INVESCO, Putnam and/or Marsico Capital
shall not be subject to liability to NBAI or to 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.
The Sub-Advisory Agreements became effective with respect to each Master
Portfolio as of their execution date and, unless sooner terminated, continue in
full force and effect for one year, and may be continued with respect to each
Master Portfolio thereafter, provided that the continuation of the Agreements
are 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 Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b)
the affirmative vote of a majority of the Trust's Trustees who are not parties
to such Agreements or "interested persons" (as defined in the 1940 Act) of a
party to such Agreements (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
The Sub-Advisory Agreements will terminate automatically in the event of their
assignment, and are terminable with respect to a Master 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 Master Portfolio), or by
NBAI, TradeStreet, Chicago Equity, Gartmore, INVESCO, Putnam or Marsico Capital
on 60 days' written notice.
Administrator, Co-Administrator, and Sub-Administrator. Stephens Inc. and NBAI
(the "Co-Administrators") serve as co-administrators of each Master Portfolio.
The Co-Administrators serve under a co-administration agreement
("Co-Administration Agreement"), which was approved by the Board of Trustees on
December 2, 1998. The Co-Administrators receive, as compensation for their
services rendered under the Co-Administration Agreement, administration fees,
computed daily and paid monthly.
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among other
things, (i) maintain office facilities for the Master Portfolios, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board 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 the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinating the provision of services to the
Trust by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii)
generally assist in all
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aspects of the Trust's operations. Stephens bears all expenses incurred in
connection with the performance of its services.
Also, pursuant to the Co-Administration Agreement, NBAI has agreed to, among
other things, (i) provide accounting and bookkeeping services for the Master
Portfolios, (ii) compute each Master 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 the Trust's federal and state tax returns,
(v) perform monthly compliance testing for the Trust, and (vi) prepare and
furnish the Trust monthly broker security transaction summaries and transaction
listings and performance information. NBAI bears all expenses incurred in
connection with the performance of its services.
The Co-Administration Agreement may be terminated by a vote of a majority of the
Board of Trustees, by Stephens or by NBAI on 60 days' written notice without
penalty. The Co-Administration Agreement is not assignable without the written
consent of the other party. Furthermore, the Co-Administration Agreement
provides that Stephens and NBAI shall not be liable to the Master Portfolios or
to their shareholders except in the case of Stephens' or NBAI's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Bank of New York ("BNY") serves as sub-administrator for the Master
Portfolios pursuant to a sub-administration agreement. Pursuant to its terms,
BNY assists Stephens and NBAI in supervising, coordinating and monitoring
various aspects of the Master Portfolios' administrative operations. For
providing such services, BNY is entitled to receive a monthly fee from NBAI.
Custodian and Transfer Agent: BNY , 90 Washington Street, New York, New York
10286, serves as custodian ("Custodian") for the securities and cash of each
Master Portfolio. As custodian, BNY, maintains custody of the Master 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 the Master Portfolios for payments of dividends, distributions and
redemptions, endorses and collects on behalf of the Master Portfolios all
checks, and receives all dividends and other distributions made on securities
owned by the Master Portfolios.
The Bank of New York ("BONY"), located at Avenue des Arts, 35 1040 Brussels,
Belgium, serves as custodian for the assets of the Nations International Equity
Master Portfolio.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to delegate
certain foreign custody matters to foreign custody managers and to modify the
criteria applied in the selection process. Accordingly, BONY serves as Foreign
Custody Manager, pursuant to a Foreign Custody Manager Agreement, under which
the Board Trustees retain the responsibility for selecting foreign compulsory
depositories, although BONY agrees to make certain findings with respect to such
depositories and to monitor such depositories.
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Master Portfolios. Under the transfer agency
agreement, the transfer agent maintains the interestholder account records for
the Trust, handles certain communications between interestholders and the Trust,
and distributes dividends and distributions payable by the Trust to
interestholders, and produces statements with respect to account activity for
the Trust and its interestholders for these services.
Counsel: Morrison & Foerster LLP serves as legal counsel to the Trust and the
Nations Master Portfolios. Their address is 2000 Pennsylvania Avenue, N.W.,
Suite 5500, Washington, D.C. 20006-1812.
ITEM 16. Brokerage Allocation and Other Practices.
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 Master
Portfolio, for the selection of broker/dealers, for the execution of such Master
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. 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.
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In the over-the-counter market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without stated
commissions, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Master 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. In addition, the Adviser
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of a Master 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 Master 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 Master
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 Master Portfolio as well as for one or more of the other clients of the
Adviser. Investment decisions for each Master 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 Master Portfolio is concerned. The Trust believes that over time its
ability to participate in volume transactions will produce superior executions
for the Master Portfolios.
The portfolio turnover rate for each Master 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 which enable the Master Portfolios to receive
favorable tax treatment.
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The Master 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
Master Portfolio will engage in this practice, however, only when the Adviser,
in its sole discretion, believes such practice to be otherwise in the Master
Portfolio's interests.
The Trust will not execute portfolio transactions through, or purchase or sell
portfolio securities from or to the distributor, the Adviser, the administrator,
the co-administrator or their affiliates, acting as principal (including
repurchase and reverse repurchase agreements), except to the extent permitted by
applicable law. In addition, the Trust will not give preference to
correspondents of BankAmerica 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 BankAmerica or its affiliates, and to
take into account the sale of Master Portfolio interests 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 Master
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating thereto of which the distributor, the Adviser, the
administrator, or the co-administrator, or any of their affiliates, is a member,
except to the extent permitted by the SEC. Under certain circumstances, the
Master 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 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 Master Portfolios may purchase securities from underwriting
syndicates of which Bank of America 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 Master Portfolio are made independently from those
for the Trust's other investment portfolios, 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
Master 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 Master 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 Master
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 Master Portfolio or the size of the position obtained or sold by
the Master Portfolio. To the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Master Portfolios with those to
be sold or purchased for other investment portfolios, investment companies, or
accounts in executing transactions.
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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), the Adviser must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ...viewed in terms of either that particular transaction or
its overall responsibilities with respect to the accounts as to which it
exercises investment discretion and that the services provided by a broker
provide an adviser with lawful and appropriate assistance in the performance of
its investment decision making responsibilities." Accordingly, the price to a
Master 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 Master 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; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Trust's Trustees with respect to the performance, investment activities
and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research 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
Master Portfolios. Similarly, any research services received by the Adviser
through the placement of Master Portfolio transactions of other clients may be
of value to the Adviser in fulfilling its obligations to the Master 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 Master
Portfolios.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
DESCRIPTION OF SHARES
The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of units of the Master Portfolios. Each unit of a Master Portfolio
represents an equal proportionate interest in that Master Portfolio with each
other unit. Units are entitled upon liquidation to a pro rata share in the net
assets of the Master Portfolios. Interestholders have no preemptive rights. The
Agreement and Declaration of Trust provides that the Trustees of the Trust may
create additional series of interests. All consideration received by the Trust
for Beneficial Interest in any
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additional series and all assets in which such consideration is invested would
belong to that Master Portfolio and would be subject to the liabilities related
thereto. Certificates representing Beneficial Interests will not be issued.
Each Master Portfolio will vote separately on matters pertaining solely to such
Master Portfolio. Such matters include matters relating to a Master Portfolio's
investment advisory agreement. All Master Portfolios will vote as a whole on
matters affecting all Master Portfolios such as the election of Trustees and the
appointment of the Trust's independent accountant.
Net investment income for the Master Portfolios for dividend purposes consists
of (i) interest accrued and original issue discount earned on a Master
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 Master Portfolio and the general expenses of the
Trust prorated to a Master Portfolio on the basis of its relative net assets,
plus dividend or distribution income on a Master Portfolio's assets.
Prior to purchasing Beneficial Interests in one of the Master Portfolios, the
impact of dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such Beneficial Interests
prior to the record date will have the effect of reducing the per unit of
interest net asset value by the per unit amount of the dividend or distribution.
All or a portion of such dividend or distribution, although in effect a return
of capital, may be subject to tax.
Interestholders receiving a distribution in the form of additional units will be
treated as receiving an amount equal to the fair market value of the units
received, determined as of the reinvestment date.
The Master Portfolios use the so-called "equalization accounting method" to
allocate a portion of earnings and profits to redemption proceeds. This method
permits a Master Portfolio to achieve more balanced distributions for both
continuing and departing interestholders. Continuing interestholders should
realize tax savings or deferrals through this method, and departing
interestholders will not have their tax obligations change. Although using this
method will not affect a Master Portfolio's total returns, it may reduce the
amount that otherwise would be distributable to continuing interestholders by
reducing the effect of redemptions on dividend and distribution amounts.
ITEM 18. PURCHASE, REDEMPTION, AND PRICING OF SHARES
Beneficial Interests in the Master Portfolios are issued by the Trust in private
placement transactions which do not involve a "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended ("1933 Act").
Investments in the Master Portfolios may only be made by investment companies or
other entities which are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The Master Portfolios are prohibited by the Trust's
Declaration of Trust from accepting investments from individuals, S
corporations, partnerships and grantor trusts.
In addition to cash purchases of Beneficial Interests, if accepted by the Trust,
investments in Beneficial Interests of a Master Portfolio may be made in
exchange for securities which are eligible for purchase by the Master Portfolio
and consistent with the Master Portfolio's investment objective and policies as
described in Part A. In connection with an in-kind securities payment, a Master
Portfolio may require, among other things, that the securities (i) be valued on
the day of purchase in accordance with the pricing methods used by the Master
Portfolio; (ii) are accompanied by satisfactory assurance that the Master
Portfolio will have good and marketable title to such securities received by it;
(iii) are not subject to any restrictions upon resale by the Master Portfolio;
(iv) be in proper form for transfer to the Master Portfolio; and (v) are
accompanied by adequate information concerning the basis and other tax matters
relating to the securities. All dividends, interest, subscription or other
rights pertaining to such securities shall become the property of the Master
Portfolio engaged in the in-kind purchase transaction and must be delivered to
such Master Portfolio by the investor upon receipt from the issuer. Securities
acquired through an in-kind purchase will be acquired for investment and not for
immediate resale. Shares purchased in exchange for securities generally cannot
be redeemed until the transfer has settled.
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The Trust is required to redeem for cash all full and fractional units of
Beneficial Interests in the Trust. The redemption price is the net asset value
per unit of each Master Portfolio next determined after receipt by the
Distributor of the redemption order.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
interestholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
Beneficial Interests in a Master Portfolio for any period during which the
Exchange, Bank of America, the Distributor, the Administrator, the
Co-Administrator, and/or the Custodian are not open for business.
By use of the exchange privilege, the interestholder authorizes the transfer
agent or the interestholder's financial institution to rely on telephonic
instructions from any person representing himself to be the investor and
reasonably believed to be genuine. The transfer agent's or a financial
institution's records of such instructions are binding. Exchanges are taxable
transactions for Federal income tax purposes; therefore, an interestholder will
realize a capital gain or loss depending on whether the interest being exchanged
has a value which is more or less than its adjusted cost basis.
The Trust may limit the number of times the exchange privilege may be exercised
by an interestholder within a specified period of time. Also, the exchange
privilege may be terminated or revised at any time by the Trust upon such notice
as may be required by applicable regulatory agencies (presently sixty days for
termination or material revision), provided that the exchange privilege may be
terminated or materially revised without notice under certain unusual
circumstances.
Part A describes the exchange privileges available to interestholders.
DETERMINATION OF NET ASSET VALUE
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. With respect to Nations Intermediate Bond Master Portfolio, securities may
be valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as yield,
type of issue, coupon rate maturity and seasoning differential. Securities for
which prices are not provided by the pricing service are valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities.
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 Master
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
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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 of the Master Portfolios that
invest in foreign securities or engage in Foreign Currency Transactions, all
assets and liabilities of the Master Portfolios initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offer prices of such currencies against U.S. dollars quoted by a major 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 Beneficial Interests involuntarily to reimburse the Master
Portfolios for any loss sustained by reason of the failure of a an
interestholder to make full payment for interests/units purchased by the
interestholder or to collect any charge relating to a transaction effected for
the benefit of an interestholder which is applicable to such interest as
provided in Part A 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.
ITEM 19. TAXATION.
The Trust is organized as a business trust under Delaware law. Under the Trust's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a non-publicly traded partnership for such
purposes and, therefore, such Master Portfolio will not be subject to any
federal income tax. However, each investor in a Master Portfolio will be taxable
on its share (as determined in accordance with the governing instruments of the
Trust) of such Master Portfolio's ordinary income and capital gain in
determining its federal income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
Each Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in the Master Portfolio may satisfy the requirements
of Subchapter M of the Code, by investing substantially all of its investable
assets in the Master Portfolio. Investors are advised to consult their own tax
advisors as to the tax consequences of an investment in a Master Portfolio.
ITEM 20. UNDERWRITERS.
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the Beneficial Interests in the Master Portfolios.
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells Beneficial Interests in the Master Portfolios on a
continuous basis and transmits purchase and redemption orders that it receives
to the Trust or the Transfer Agent. Additionally, the Distributor has agreed to
use appropriate efforts to solicit orders for the sale of Beneficial Interests
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 Master Portfolios, including,
but not limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing of Part A to other than existing interestholders, and
the printing and mailing of sales literature. The Distributor, however, may be
reimbursed for all or a portion of such expenses to the extent permitted by a
distribution plan adopted by the Trust pursuant to Rule 12b-1 under the 1940
Act.
The Distribution Agreement 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
Beneficial Interests of the Master 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
Master 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
Beneficial Interest in the Master Portfolio, or by the Distributor.
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ITEM 21. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
The Board of Trustees has selected PricewaterhouseCoopers LLP, with offices at
160 Federal Street, Boston MA 02110, to serve as the independent accountants to
the Trust. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, were the independent accountants for each of the Blue Chip Fund
(predecessor to Nations Blue Chip Master Portfolio) and the Investment Grade
Bond Fund (predecessor to Nations Intermediate Bond Master Portfolio) for the
fiscal year ended February 28, 1999. Certain financial information which appears
in the financial statements has been audited by the accountants.
The Annual Reports for the Blue Chip Fund (predecessor to Nations Blue Chip
Master Portfolio) and the Investment Grade Bond Fund (predecessor to Nations
Intermediate Bond Master Portfolio) for the fiscal year ended February 28, 1999
are incorporated herein by reference. No other Master Portfolio had commenced
investment operations as of May 21, 1999. These Annual Reports will be sent free
of charge with Part B to any interestholder who requests a copy of Part B.
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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.
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
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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 - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely
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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 Master 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 company
Fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
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promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
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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 Part A, each Market Master 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 these Master
Portfolios intends to limit its transactions in futures contracts and options so
that not more than 5% of the Master Portfolio's net assets are at risk.
Furthermore, in no event would any Master 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
Master Portfolio under the rules of the exchange on which the futures contract
(or futures option) is traded, plus any premiums paid by the Master Portfolio on
its open futures options positions, exceeds 5% of the Master Portfolio's total
assets, after taking into account any unrealized profits and unrealized losses
on the Master 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 Master 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 Master 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 Master Portfolio,
through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Master 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 Master 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 Master
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
Master Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Master Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Master Portfolio's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Master
Portfolio realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Master Portfolio realizes a loss.
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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 Master
Portfolio would deal only in standardized contracts on recognized changes. 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 Master Portfolios may trade in any futures
contract for which there exists a public market, including, without limitation,
the foregoing instruments.
Examples of Futures Contract Sale. A Master 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 accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Master 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 Master 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 Master 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 Purchase. A Master 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 Master Portfolio's basic motivation would be to maintain
for a time the income advantage from investing in the short-term securities; the
Master 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 Master Portfolio may purchase.
For example, assume that the market price of a long-term bond that the
Master 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 Master
Portfolio might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Master 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
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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 Master
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 Master 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 Master 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 Master 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 Master 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 Master Portfolio will purchase index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Master 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 Master Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Master 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 Master 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).
<TABLE>
<CAPTION>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
<S> <C> <C> <C> <C> <C> <C>
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
B-3
<PAGE>
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/
Increase in Purchase Contract
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 Gain on Futures = $40,000
Value = $40 000
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE MASTER PORTFOLIO HAD ENTERED INTO AN ANTICIPATORY
PURCHASE HEDGE, OR MARKET VALUE INCREASED AND THE MASTER PORTFOLIO HAD HEDGED
ITS STOCK PORTFOLIO, THE RESULTS OF THE MASTER PORTFOLIO'S TRANSACTIONS IN STOCK
INDEX FUTURES WOULD BE AS SET FORTH BELOW.
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 Loss on Futures = $2,500
Price = $2,500 Contract
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 = $40,000 Loss of Futures = $40,000
Value = $40 000
</TABLE>
B-4
<PAGE>
III. Margin Payments
---------------
Unlike when a Master Portfolio purchases or sells a security, no price
is paid or received by the Master Portfolio upon the purchase or sale of a
futures contract. Initially, the Master Portfolio will be required to deposit
with the broker or in a segregated account with the Master 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 Master 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
Master 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 valuable, a process known as
marking to the market. For example, when a Master 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 Master Portfolio will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where a Master
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 Master 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 Master 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 Master Portfolio, and the Master
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
Master 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
Master Portfolio would be in a better position than if it had not hedged at Al.
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 Master
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
Master 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 Master 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 Master 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 Master Portfolio may decline. If this
occurred, the Master 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 Master 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 Master 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 Master Portfolio
will realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
B-5
<PAGE>
In instances involving the purchase of futures contracts by a Master
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 Master
Portfolio's Custodian and/or in a margin account with a broker to collateralize
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 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 Master
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 Master 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 Master Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Master 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 Master 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 Master 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 Master Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
-----------------------------
The Master 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
B-6
<PAGE>
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 Master 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 Master Portfolios do not currently
intend to write future options, and will not do so in the future absent any
necessary regulatory approvals.
ACCOUNTING TREATMENT.
---------------------
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
B-7
<PAGE>
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.
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 FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, 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.
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.
C-1
<PAGE>
The Master Portfolio expects 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 Master 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 Master 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. VRMs are mortgages which reset the mortgage's interest rate periodically
with changes in open market interest rates. To the extent that the Master
Portfolio is actually invested in VRMs, the Master Portfolio's interest income
will vary with changes in the applicable interest rate on pools of VRMs. 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 Master 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 companies.
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 Master Portfolio.
The compounding effect from reinvestments of monthly payments received by the
Master Portfolio will increase its yield to shareholders, compared to bonds that
pay interest semi-annually.
C-2
<PAGE>
NATIONS MASTER INVESTMENT TRUST
ONE BANK OF AMERICA PLAZA
33RD FLOOR
CHARLOTTE, NC 28255
1-800-626-2275
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
All references to the "Registration Statement" in the following list of
Exhibits refer to the Registrant's Registration Statement on Form N-1A (FILE
NO. 811-09347)].
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(a) ARTICLES OF INCORPORATION:
(a)(1) Certificate of Trust, filed herewith.
(a)(2) Form of Declaration of Trust, filed herewith.
- -----------------------------------------------------------------------------------------------------------
(b) BY-LAWS:
Form of Bylaws, filed herewith.
- -----------------------------------------------------------------------------------------------------------
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITIES HOLDERS:
Not Applicable
- -----------------------------------------------------------------------------------------------------------
(d) INVESTMENT ADVISORY CONTRACTS:
(d)(1) Form of Investment Advisory Agreement between NationsBanc
Advisors, Inc., ("NBAI") and the Registrant, filed
herewith.
(d)(2) Form of Sub-Advisory Agreement among NBAI, Chicago Equity
Partners Corporation and the Registrant, filed herewith.
(d)(3) Form of Sub-Advisory Agreement among NBAI, TradeStreet Investment Associates, Inc.
and the Registrant, filed herewith.
(d)(4) Form of Sub-Advisory Agreement among NBAI, Gartmore Global Partners and the
Registrant, filed herewith.
C-1
<PAGE>
- -----------------------------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
(d)(5) Form of Sub-Advisory Agreement among NBAI, INVESCO Global Asset Management (N.A.),
Inc. and the Registrant, filed herewith.
(d)(6) Form of Sub-Advisory Agreement among NBAI, Putnam Investment Management, Inc. and
the Registrant, filed herewith.
(d)(7) Form of Sub-Advisory Agreement among NBAI, Marsico
Capital Management, LLC and the Registrant, filed
herewith.
- -----------------------------------------------------------------------------------------------------------
(e) Not Applicable pursuant to General Instruction (B)(2)(b).
- -----------------------------------------------------------------------------------------------------------
(f) BONUS OR PROFIT SHARING CONTRACTS:
Form of Deferred Compensation Plan, filed herewith.
- -----------------------------------------------------------------------------------------------------------
(g) CUSTODIAN AGREEMENTS:
Form of Custody Agreement among Registrant and The Bank
of New York ("BNY"), filed herewith.
- -----------------------------------------------------------------------------------------------------------
(h) OTHER MATERIAL CONTRACTS:
(h)(1) Form of Transfer Agency Agreement between Registrant and First Data Investors
Services Group, Inc., filed herewith.
(h)(2) Form of Co-Administration Agreement between NBAI, Stephens, and Registrant, filed
herewith.
(h)(3) Form of Sub-Administration Agreement between NBAI, BNY, and Registrant, filed
herewith.
- -----------------------------------------------------------------------------------------------------------
(i) Not Applicable pursuant to General Instruction (B)(2)(b).
- -----------------------------------------------------------------------------------------------------------
(j) Not Applicable pursuant to General Instruction (B)(2)(b).
- -----------------------------------------------------------------------------------------------------------
(k) Not Applicable pursuant to General Instruction (B)(2)(b).
- -----------------------------------------------------------------------------------------------------------
(l) INITIAL CAPITAL AGREEMENTS:
Not Applicable
- -----------------------------------------------------------------------------------------------------------
(m) RULE 12B-1 PLAN:
None
- -----------------------------------------------------------------------------------------------------------
C-2
<PAGE>
- -----------------------------------------------------------------------------------------------------------
EXHIBIT LETTER DESCRIPTION
- -----------------------------------------------------------------------------------------------------------
(n) FINANCIAL DATA SCHEDULE:
Not Applicable
- -----------------------------------------------------------------------------------------------------------
(o) RULE 18F-3 PLAN:
Not Applicable
- -----------------------------------------------------------------------------------------------------------
(p) Powers of Attorney for Edmund L. Benson, Charles B. Walker, A. Max Walker, Thomas
S. Word, Jr., William H. Grigg, James Ermer, Thomas F. Keller and Richard H. Blank,
Jr., filed herewith.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OF UNDER COMMON CONTROL WITH THE FUND
No person is controlled by or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
Article V, Section 5.3 of Registrant's Declaration of Trust
provides for the indemnification of Registrant's trustees and employees.
Indemnification of Registrant's administrators, principal underwriter, custodian
and transfer agent is provided for, respectively, in:
1. Co-Administration Agreement with Stephens Inc. and NationsBanc Advisors,
Inc.;
2. Sub-Administration Agreement with The Bank of New York and NationsBanc
Advisors, Inc.;
3. Placement Agency Agreement with Stephens Inc.;
4. Custody Agreement with The Bank of New York;
5. Transfer Agency and Registrar Agreement with First Data Investors Services
Group, Inc.
Promptly after receipt by an indemnified party above of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be
C-3
<PAGE>
entitled to notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, to assume the defense thereof, with counsel satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
such case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
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 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, 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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
To the knowledge of the Registrant, none of the directors or officers
of NBAI, the adviser to the Registrant's portfolios, or TradeStreet, Gartmore,
INVESCO, Putnam, Marsico or Chicago Equity, the investment sub-advisers, except
those set forth below, are or have been, at any time during the past two
calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the company that
owns all the outstanding stock (other than directors' qualifying shares) of
NBAI, TradeStreet, Gartmore, INVESCO, Putnam, Marsico or Chicago Equity,
respectively, or other subsidiaries of Bank of America 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 Bank of
America Corporation. Information with respect to each director and officer of
the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the SEC pursuant to the Investment Advisers Act of 1940, as amended (the
"Advisers Act") (file no. 801-49874).
(c) TradeStreet performs investment sub-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 Bank of
America Corporation. Information with respect to each director and officer of
the investment sub-adviser is
C-4
<PAGE>
incorporated by reference to Form ADV filed by TradeStreet with the SEC pursuant
to the Advisers Act (file no. 801-50372).
(d) Marsico performs investment sub-advisory services for the
Registrant and certain other customers. Marsico Management Holdings, LLC, a
wholly owned subsidiary of NationsBank, owns 50% of the equity of Marsico
Capital. Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by Marsico with the
SEC pursuant to the Advisers Act (file no. 801-54914).
(e) Gartmore performs investment sub-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 investment
sub-adviser is incorporated by reference to Form ADV filed by Gartmore with the
SEC pursuant to the Advisers Act (file no. 801-48811).
(f) INVESCO performs investment sub-advisory services for the
Registrant and certain other customers. INVESCO is a division of INVESCO Global,
a publicly traded investment management firm and a wholly owned subsidiary of
AMVESCAP PLC, a publicly traded UK financial holding company that engages
through its subsidiaries in the business of international investment management.
Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by INVESCO with the
SEC pursuant to the Advisers Act (file no. 801-54192).
(g) Putnam performs investment sub-advisory services for the Registrant
and certain other customers. Putnam is a wholly owned subsidiary of Putnam
Investments, Inc., an investment management firm which, except for shares held
by employees is owned by Marsh & McLennan Companies, a publicly traded
professional services firm that engages through its subsidiaries in the business
of investment management. Information with respect to each director and officer
of the investment sub-adviser is incorporated by reference to Form ADV filed by
Putnam with the SEC pursuant to the Advisers Act (file no. 801-7974).
(h) Chicago Equity performs investment sub-advisory services for the
Registrant and certain other customers. Chicago Equity is a wholly owned
subsidiary of Bank of America Corporation. Information with respect to each
director and officer of the investment sub-adviser is incorporated by reference
to Form ADV filed by Gartmore with the SEC pursuant to the Advisers Act (file
no. [801-55997]).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Stephens, distributor for the Registrant, does not presently act as
investment adviser for any other registered investment companies, but does act
as principal
C-5
<PAGE>
underwriter for Nations Fund Trust, Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations Institutional Reserves, Nations LifeGoal Fund, Inc., Nations
Annuity Trust, 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 Investment Company Act of 1940, as amended (the "1940
Act") (file No. 501-15510).
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) NBAI, One Bank of America Plaza, Charlotte, NC 28255 (records relating to
its function as Investment Adviser and Co-Administrator).
(2) TradeStreet, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as Sub-Adviser).
(3) Gartmore, One Bank of America Plaza, Charlotte, NC 28255 (records relating
to its function as Sub-Adviser).
(4) Marsico Capital, 1200 17th Street, Suite 1300, Denver, CO 80202 (records
relating to its function as Sub-Advisor).
(5) INVESCO, 1315 Peachtree Street, N.E., Atlanta, GA 30309 (records relating
to its function as Sub-Advisor).
(6) Putnam, One Post Office Square, Boston, MA 02109 (records relating to its
function as Sub-Advisor).
(7) Chicago Equity, 231 South LaSalle, Chicago, IL 60697 (records relating to
its function as Sub-Advisor).
(8) Stephens, 111 Center Street, Little Rock, AR 72201 (records relating to its
function as Distributor and Co-Administrator).
(9) First Data, One Exchange Place, Boston, MA 02109 (records relating to its
function as Transfer Agent).
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(10) BNY, 90 Washington Street, New York, NY 10286 (records relating to its
function as Custodian and Sub-Administrator)
ITEM 29. MANAGEMENT SERVICES
Not Applicable
ITEM 30. UNDERTAKINGS
Not Applicable
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 19th day of May, 1999.
NATIONS MASTER INVESTMENT 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
Exhibit 99.A1
CERTIFICATE OF TRUST
OF
NATIONS MASTER INVESTMENT TRUST
The undersigned, constituting the entire Board of Trustees of Nations
Master Investment Trust (the "Trust"), in order to form a Delaware business
trust pursuant to Section 3810 of the Delaware Business Trust Act, do hereby
certify the following:
1. The name of the Delaware business trust is NATIONS MASTER INVESTMENT TRUST,
which is registered as an investment company under the Investment Company Act of
1940, as amended.
2. The registered office of the Trust in Delaware is Corporation Trust Center,
1209 Orange Street, Wilmington, DE 19801.
3. The registered agent for service of process on the Trust is The Corporation
Trust Company, 1209 Orange Street, Wilmington, DE 19801.
4. This certificate of trust shall be effective the date it is filed with the
Office of the Delaware Secretary of State.
5. Notice is hereby given that the Trust shall consist of one or more series.
The debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust shall be
enforceable against the assets of such series only and not against the assets of
the Trust generally or any other series thereof, and, none of the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to the Trust generally or any other series thereof shall
be enforceable against the assets of such series.
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustees of NATIONS MASTER
INVESTMENT TRUST have executed this certificate, which may be executed in
counterpart, as of this ___ day of January, 1999.
____________________________________________
Edmund L. Benson, III
____________________________________________
James Ermer
____________________________________________
William H. Grigg
____________________________________________
Thomas F. Keller
____________________________________________
Carl E. Mundy, Jr.
____________________________________________
A. Max Walker
____________________________________________
Charles B. Walker
____________________________________________
Thomas S. Word
____________________________________________
James B. Sommers
Exhibit 99.A2
FORM OF
DECLARATION OF TRUST
OF
NATIONS MASTER INVESTMENT TRUST
a Delaware Business Trust
January 14, 1999
Principal Place of Business:
One Bank of America Plaza
33rd Floor
Charlotte, North Carolina 28255
<PAGE>
TABLE OF CONTENTS
ARTICLE I
<TABLE>
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: By-Laws............................................................................ 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............................................................................ 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>
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, etc.
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>
FORM OF
DECLARATION OF TRUST
OF
NATIONS MASTER INVESTMENT TRUST
This DECLARATION OF TRUST of the NATIONS MASTER INVESTMENT TRUST is
made on the 14th day of January, 1999, 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 laws 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 Master Investment 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 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 (defined below).
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<PAGE>
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.
"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 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.
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<PAGE>
"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.
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
3
<PAGE>
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.
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
4
<PAGE>
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 (1/3) 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 of
Trustees 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 staff
releases or interpretations.
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
5
<PAGE>
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 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 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.
6
<PAGE>
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 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, placement agent, 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
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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, placement agent, 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.
ARTICLE IV
Investment Advisory, Administrative Services
and Placement Agency 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 agency,
shareholder servicing and/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 agency, shareholder servicing and/or other services as the Trustees
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.
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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 or 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 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
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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. 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 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.
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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 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.
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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 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.
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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 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 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.
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(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.
(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: (i) for any period (1) during which the New York Stock Exchange is
closed other than for customary weekend and holiday closing, or (2) during which
trading on the New York Stock Exchange is restricted, (ii) for any period during
which an emergency exists as a result of which (1) the disposal by the Trust of
investments owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for the Trust to fairly determine the value of its net
assets, or (iii) for such other periods as the Commission or any successor
governmental authority by order may permit.
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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 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: (a) 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 (b) 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 (c) 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 the
By-Laws of the Trust require 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
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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.
9.4 Proxies 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 (a) for
the election of Trustees as contemplated by Section 2.2 hereof, (b) with respect
to any investment advisory contract as contemplated by Section 4.1 hereof, (c)
with respect to termination of the Trust as provided in Section 10.2 hereof, (d)
with respect to any amendment of the Declaration to the extent and as provided
in Section 10.3 hereof, (e) with respect to any merger, consolidation,
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conversion or sale of assets as provided in Section 10.4 hereof, (f) with
respect to incorporation of the Trust to the extent and as provided in Section
10.4 hereof, and (g) 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.
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.
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(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 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 (i) when required by the 1940 Act,
Interests shall be voted in the aggregate and not by individual series, and (ii)
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 five series of Interests designated as
"Nations Blue Chip Master Portfolio," "Nations Intermediate Bond Master
Portfolio," "Nations Marsico
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Focused Equities Master Portfolio," "Nations Marsico Growth & Income Master
Portfolio," "and Nations International Equity Master Portfolio." 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 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.
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(3) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they 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 (a) 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, (b) 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 (c) sell, lease or exchange all or substantially all of its
20
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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 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
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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 ___ day of January, 1999.
______________________________________
Edmund L. Benson, III, Trustee
______________________________________
James Ermer, Trustee
______________________________________
William H. Grigg, Trustee
______________________________________
Thomas F. Keller, Trustee
______________________________________
Carl E. Mundy, Jr., Trustee
______________________________________
A. Max Walker, Trustee
______________________________________
Charles B. Walker, Trustee
______________________________________
Thomas S. Word, Trustee
______________________________________
James B. Sommers, Trustee
23
Exhibit 99.B
FORM OF
BY-LAWS
OF
NATIONS MASTER INVESTMENT TRUST
a Delaware Business Trust
January 14, 1999
Principal Place of Business:
One Bank of America Plaza
33rd Floor
Charlotte, North Carolina 28255
<PAGE>
FORM OF
BY-LAWS
OF
NATIONS MASTER INVESTMENT TRUST
These BY-LAWS are made as of the 14th day of January, 1999, and adopted
pursuant to Section 2.7 of the Declaration of Trust of NATIONS MASTER INVESTMENT
TRUST, dated January 14, 1999, 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" or the
"Board") 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
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one or three Inspectors are to be appointed, but failure to allow such
determination by the 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 action proposed to be
taken by written consent. The attendance of a Trustee at a meeting shall
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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 necessary
to manage the portfolio security loan business of the Trust. All action by the
Executive
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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 of the Board, 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 officer and delivered or mailed to the President, Chief Operating Officer
or Secretary, and such
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<PAGE>
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 such office in a Delaware corporation, and shall have such other
authorities and duties as the Trustees shall from time to time determine.
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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 or she may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or to
its order. He or she shall deposit all funds of the Trust as may be ordered by
the Trustees, the Chairman of the Board, the President or the Chief Operating
Officer. The Treasurer 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 or
she 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
(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
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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, or 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
March 31 of each year, subject, however, to change from time to time by the
Board.
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.
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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.D1
FORM OF
INVESTMENT ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of this 21st day of May, 1999, by and between
NATIONS MASTER INVESTMENT 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 investment
sub-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 Portfolio 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.
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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 January 14, 1999, 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 1940 Act (File No.
________); 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;
(d) maintain all books and records with respect to each Portfolio's
securities and transactions;
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<PAGE>
(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(s) 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 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;
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(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;
(f) will use its best efforts to perform its duties and obligations
under this Agreement without: (a) any failure of its computer systems, or those
used by it in the performance of its duties hereunder, properly to record,
store, process, calculate or present calendar dates falling on and after, and
time spans including, September 9, 1999, January 1, 2000 or February 29, 2000
(the "Subject Dates") as a result of the occurrence, or use of data containing
any such Subject Dates; (b) any failure of its computer systems, or those used
by it in the performance of its duties hereunder, to calculate any information
dependent on or relating to dates on or after the Subject Dates; or (c) any loss
of functionality or performance with respect to the maintenance of records or
processing of data containing dates falling on or after the Subject Dates; and
(g) 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.
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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. 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. TERM AND APPROVAL. This Agreement shall become effective with respect
to each Portfolio when approved in accordance with the requirements of the 1940
Act, and shall thereafter continue in force and effect for two years, and may be
continued from year to year with respect to each Portfolio thereafter, 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 Trustees
of the Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a
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party to this Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such
purpose.
12. TERMINATION. This Agreement may be terminated at any time with respect
to:
(a) a Portfolio, without the payment of any penalty, by
vote of the Trust's Board of Trustees or by vote of a majority of
a Portfolio's outstanding voting securities, or by the Adviser,
upon written notice to the other parties to this Agreement; or
(b) by the 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.
13. 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.
14. RELEASE. The names "Nations Master Investment Trust" and "Trustees of
Nations Master Investment 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 January 14,
1999, 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 Master Investment 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 (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.
15. 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.
16. COUNTERPARTS. This Agreement may be executed in any manner of
counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
NATIONS MASTER INVESTMENT TRUST
on behalf of the Portfolios
By:____________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By:______________________________
Edward D. Bedard
Senior Vice President and Chief
Operating Officer
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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>
RATE OF
PORTFOLIO COMPENSATION
--------- ------------
<S> <C>
Nations Blue Chip Master Portfolio 0.65%
Nations Intermediate Bond Master Portfolio 0.40%
Nations International Equity Master Portfolio 0.90%
Nations Marsico Growth & Income Master Portfolio 0.85%
</TABLE>
Approved: December 2, 1998
8
Exhibit 99.D2
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of this 21st day of May, 1999, by and between
NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
CHICAGO EQUITY PARTNERS CORPORATION, a Delaware corporation (the "Sub-Adviser"),
and NATIONS MASTER INVESTMENT 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 ("Commission") under the Investment Company Act of 1940, as amended
("1940 Act") as an open-end, management investment company; and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser is also registered with the Commission under
the Advisers Act as an investment adviser and engages in the business of acting
as an investment adviser; and
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement, dated May 21, 1999 (the "Investment Advisory Agreement"),
pursuant to which the Adviser acts 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 of which is
hereby acknowledged, it is agreed between the parties hereto as follows:
1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby appoints the Sub-Adviser to
act as investment sub-adviser or co-investment sub-adviser 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. SERVICES OF SUB-ADVISER. Subject to the oversight and supervision of the
Adviser and the Trust's Board of Trustees, the Sub-Adviser will provide a
continuous investment program for the Portfolios, including investment research
and management with respect to all
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equity securities and investments. Pursuant to the foregoing, the Sub-Adviser
will determine from time to time what securities and other investments will be
purchased, retained or sold by the Portfolios. The Sub-Adviser will provide the
services rendered by it under this Agreement in accordance with the investment
criteria and policies established from time to time for the Portfolios by the
Adviser, the Portfolios' investment objectives, policies and restrictions as
stated in the Portfolios' Prospectuses and Statement of Additional Information,
the operating policies and procedures of the Portfolios, and resolutions of the
Trust's Board of Trustees.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Portfolios' accountant for the purpose of
updating the Portfolios' cash availability throughout the day as
required;
(b) Maintain historical tax lots for each portfolio security held by the
Portfolios;
(c) Transmit trades to the Trust's custodian for proper settlement in
accordance with the Trust's procedures;
(d) Maintain all books and records with respect to the Portfolios that are
required to be maintained under Rule 31a-l(f) under the 1940 Act;
(e) Supply the Adviser, the Trust and the Trust's Board of Trustees with
reports, statistical data and economic information as requested; and
(f) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for the
Portfolios.
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;
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(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 any
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 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 its clients, including
the particular Portfolio and to the Trust. In 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 Adviser,
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 adhere to the policies and procedures of the Trust adopted on
behalf of the Portfolios;
(f) 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
3
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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
(g) 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 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.
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.
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
4
<PAGE>
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
Company 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 if so approved,
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-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 Master Investment Trust" and "Trustees of
Nations Master Investment 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 ________, 1999, 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
Master Investment Trust" entered into in the name or on behalf thereof by any of
the Trustees,
5
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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 number of counterparts,
each of which shall be deemed an original.
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 MASTER INVESTMENT TRUST
on behalf of the Portfolios
By:________________________________
A. Max Walker
President and Chairman of
the Board of Trustees
NATIONSBANC ADVISORS, INC.
By:________________________________
Robert H. Gordon
President and Director
CHICAGO EQUITY PARTNERS
CORPORATION
By:________________________________
James D. Miller
president
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 Portfolio,
computed daily and payable monthly at the annual rates listed below as a
percentage of the average daily net assets of the Portfolio:
Portfolio Rate of Compensation
---------- --------------------
Nations Blue Chip Master Portfolio 0.25%
7
Exhibit 99.D3
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of this 21st day of May, 1999, by and among
NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
TRADESTREET INVESTMENT ASSOCIATES, INC., a Maryland corporation (the
"Sub-Adviser"), and NATIONS MASTER INVESTMENT 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, dated May 21, 1999 (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
1
<PAGE>
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 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(s) 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
2
<PAGE>
overall responsibilities of the Sub-Adviser to the particular Portfolio and to
the Trust. In 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 Master Investment Trust" and "Trustees of
Nations Master Investment 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 January
14, 1999, 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 Master Investment 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 (as defined in the Declaration of Trust) 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 MASTER INVESTMENT TRUST
on behalf of the Portfolios
By: _________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: _________________________________
Edward D. Bedard
Senior Vice President and Chief
Operating Officer
TRADESTREET INVESTMENT ASSOCIATES, INC.
By: _________________________________
Holly Deem
President
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
Portfolio, computed daily and payable monthly at the annual rates listed below
as a percentage of the average daily net assets of the Portfolio:
-----------------------------------------------------------------------
RATE OF
PORTFOLIO COMPENSATION
-----------------------------------------------------------------------
Nations Intermediate Bond Master Portfolio 0.15%
-----------------------------------------------------------------------
Approved: December 2, 1998
7
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made this 21st day of May, 1999, 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 NATIONS MASTER INVESTMENT 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 "Master Portfolio" and
collectively, the "Master Portfolios").
RECITALS
WHEREAS, the Trust is a Delaware business trust registered under
the Investment Trust Act of 1940, as amended (the "1940 Act") as an open-end,
series management investment company; and
WHEREAS, the Adviser is a national bank that serves as investment
adviser to other registered investment companies and various investment
accounts; and
WHEREAS, the Sub-Adviser is registered under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), as an investment adviser
and engages in the business of acting 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; and
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser shall act as investment adviser with respect to the Master 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 Master 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 some portion or
all of the assets of the Master Portfolios as the Adviser may determine from
time to time, under the supervision of the Adviser and subject to
1
<PAGE>
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:
(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 Master Portfolios specifically, and whether concerning the
individual issuers whose securities are included in the Master
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 Master Portfolios;
(b) investing and reinvesting, on an ongoing basis, assets
held in the Master Portfolios in strict accordance with the investment
policies of the Master Portfolios as set forth in the registration
statement of the Trust with respect to the Master 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 Master 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 Master
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 Master 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 Master Portfolio and shall not act as principal. The Sub-Adviser shall not
be responsible for the administration of the Master 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 Master 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 Master Portfolios,
shall at all times be subject to any directives of the
2
<PAGE>
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 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 Master Portfolios, as the same may be amended
from time to time, under the Securities Act of 1933 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
Master 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 Master Portfolios shall
be determined in the manner set forth in the Articles of Incorporation and
registration statement of the Trust, as amended from time to time.
6. EXPENSES OF THE MASTER PORTFOLIOS. All of the ordinary business
expenses incurred by the Sub-Adviser in the operations of the Master Portfolios
and the offering of their shares shall be borne by the Master Portfolios unless
specifically provided otherwise in this
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Agreement. These expenses borne by the Master 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, Trustees and shareholder meetings, the cost of preparing
and distributing reports and notices to shareholders, the fees and other
expenses incurred by the Master 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 Master Portfolios'
shareholders.
7. EXPENSE LIMITATION. If, for any fiscal year a Master Portfolio,
the amount of the aggregate advisory fee which the Trust would otherwise be
obligated to pay with respect to the Master 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 Master 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 Master Portfolios, the documents and records
required pursuant to Rule 31a-1 under the 1940 Act as well as such records as
the Master 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 Master
Portfolios and in compliance with the provisions of Rule 31a-1. All such records
will be the property of the Master Portfolios and will be available for
inspection and use by the Master Portfolios. The Sub-Adviser will promptly
notify the Adviser and the Master 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 until the second anniversary of its
effective date. Thereafter, if not terminated, this Agreement shall continue in
effect for successive annual periods ending on January 1, 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 Master
Portfolio (as defined in Section 2(a)(42) of the 1940 Act); and
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(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 Master Portfolio, without the payment of any penalty, by vote of
the Trust's Board of Trustees or by vote of a majority of the Master 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 Master 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 Master 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 Master 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 Master Portfolios or
other securities, undertaken by the Master Portfolios or the Trust's officers,
Trustees, 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 Master Portfolios, or the Trust's officers, Trustees,
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
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Adviser shall be c/o Mutual Fund Group, 33rd Floor, One Bank of America 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 any controlling decision
of any such court, by rules, regulations or orders of the Securities and
Exchange 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 Securities and Exchange
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 MASTER INVESTMENT TRUST,
on behalf of the Master Portfolios
By:
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By:
Robert H. Gordon
President
GARTMORE GLOBAL PARTNERS
By:
Andrew J. Brown
Member, Management Committee
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SCHEDULE I
The Adviser shall pay the Sub-Adviser as full compensation for services
provided and expenses assumed hereunder, a sub-advisory fee for each Fund,
computed daily and payable monthly at the annual rates listed below as a
percentage of the average daily net assets of the Fund under the Sub-Adviser's
management:
Master Portfolio Rate of Compensation
---------------- --------------------
1. Nations International Equity Master 0.70% of average daily net assets
Portfolio
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ADDENDUM A
1. To the extent that the Sub-Adviser receives any commissions or other forms
of remuneration, directly or indirectly, in connection with Master
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 Master 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 Securities Act of 1933 and
the 1940 Act (the "Master Portfolio's Registration Statement").
3. The Sub-Adviser shall not have or maintain custody of any securities, cash
or other assets of the Master Portfolios. Custody of the Master Portfolios'
assets will be maintained by the custodian bank pursuant to an agreement
approved by the Master 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 Master 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 Master 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
Master Portfolio 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 Master Portfolios' Board of Trustees
written financial reports and analyses on the Master 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 Master 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 Master 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 Master Portfolio, or (iii) a provision of this
Agreement or (b) is
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not operationally feasible), such refusal shall be
communicated by the Sub-Adviser, including through the Adviser, and the
Master 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 Master Portfolio's
Board of Trustees for its approval.
7. Notwithstanding that all required disclosure concerning the risks
associated with the Master Portfolios' permissible investments and
investment techniques is included in the Master Portfolios' Registration
Statement, which Statement is intended for review by the investors in the
Master Portfolios and to be retained by them for future reference, with
respect to the Master 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 Master Portfolios' assets, the Sub-Adviser shall
consider the risks associated with the Master Portfolio's permissible
investments and investment techniques.
8. The Sub-Adviser or its representatives may from time to time recommend to
the Master Portfolios or effect on behalf of the Master Portfolios with
respect to Master 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
Master 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 Master Portfolio has
carefully read the following paragraphs in order to enable Master Portfolio
management to judge whether it wishes a Master 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 Master Portfolio without further reference to
Master Portfolio management or whether Master Portfolio management wishes
to be consulted before any particular transaction is effected on behalf of
the Master 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.
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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.
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 Master Portfolios' financial statements (including
the contents and valuation of the Master Portfolios) shall be submitted to
shareholders and to the Securities and Exchange 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 Master 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 Master 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 Master Portfolios as a sub-investment
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 Master
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 Master 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.D5
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of May 21, 1999 among NATIONSBANC ADVISORS,
INC., a North Carolina corporation (herein called the "Adviser"), INVESCO Global
Asset Management (N.A.), Inc., a Delaware corporation (herein called the
"Sub-Adviser") and NATIONS MASTER INVESTMENT TRUST (the "Trust"), on behalf of
the portfolio(s) of the Trust as now or hereafter may be identified on Schedule
I hereto (each a "Master Portfolio" and collectively, the "Master Portfolios").
RECITALS
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company;
and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser is also registered under the Advisers Act, as
an investment adviser and engages in the business of acting as an investment
adviser; and
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser shall act as investment adviser with respect to the Master 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
Master 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.
The Adviser hereby appoints the Sub-Adviser to act as investment
sub-adviser to the Master Portfolios for the period and on the terms set forth
in this Agreement. The Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
<PAGE>
2. Services of Sub-Adviser.
Subject to the oversight and supervision of the Adviser and the Trust's
Board of Trustees, the Sub-Adviser will provide a continuous investment program
for all of the assets of the Master Portfolios, or for such portion of the
assets of the Master Portfolios as the Adviser may determine from time to time,
including investment research and management with respect to all securities and
investments, and except for such cash balances of the Master Portfolios as may,
from time to time, be managed by the Adviser. Subject to the terms of this
Agreement, the Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Master Portfolios.
The Sub-Adviser will provide the services rendered by it under this Agreement in
accordance with the investment criteria and policies established from time to
time for the Master Portfolios by the Adviser, the Master Portfolios' investment
objectives, policies and restrictions as stated in the Prospectus(es) and
Statement(s) of Additional Information for the Master Portfolios, the operating
policies and procedures of the Master Portfolios, and resolutions of the Master
Portfolios' Board of Trustees.
Sub-Adviser further agrees that it will:
(a) Provide information to the Master Portfolios' accountant for the
purpose of updating the Master Portfolios' cash availability
throughout the day as required;
(b) Maintain historical tax lots for each portfolio security held by the
Master Portfolios;
(c) Transmit trades to the Trust's custodian for proper settlement in
accordance with the Trust's procedures;
(d) Maintain all books and records with respect to the Master Portfolios
that are required to be maintained under Rule 31a-l(f) under the 1940
Act;
(e) Supply the Adviser, the Trust and the Trust's Board of Trustees with
reports, statistical data and economic information as requested; and
(f) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for the
Master Portfolios.
3. Other Covenants.
The Sub-Adviser agrees that it will:
(a) Comply with all applicable laws, rules and regulations, including
all applicable Rules and Regulations of the Commission;
(b) 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;
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(c) Place orders pursuant to its investment determinations for the
Master Portfolios either directly with the issuer or with any
broker or dealer. In executing portfolio transactions and
selecting brokers or dealers, the Sub-Adviser will use its best
efforts to seek on behalf of the Master Portfolios 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)
provided to the Master Portfolios 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 Adviser and 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 the Master Portfolios 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 Master Portfolios. In
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 Adviser,
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 Adviser, Sub-Adviser,
the Trust's principal underwriter or any affiliated person of
either the Trust, the Adviser, Sub-Adviser, or the Trust's
principal underwriter, acting as principal in the transaction,
except to the extent permitted by the Commission;
(d) Adhere to the policies and procedures of the Trust adopted on
behalf of the Master Portfolios;
(e) Use its best efforts to perform its duties and obligations under
this Agreement without: (a) any failure of its computer systems,
or those used by it in the performance of its duties hereunder,
properly to record, store, process, calculate or present calendar
dates falling on and after, and time spans including, September
9, 1999, January 1, 2000 or February 29, 2000
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(the "Subject Dates") as a result of the occurrence, or use of
data containing any such Subject Dates; (b) any failure of its
computer systems, or those used by it in the performance of its
duties hereunder, to calculate any information dependent on or
relating to dates on or after the Subject Dates; or (c) any loss
of functionality or performance with respect to the maintenance
of records or processing of data containing dates falling on or
after the Subject Dates; and
(f) Treat confidentially and as proprietary information of the Trust,
all records and other information relative to the Trust
maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be
withheld where 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.
4. 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 the Master Portfolios or the size of the position
obtainable for or disposed of by the Master Portfolios.
5. 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 the Master
Portfolios 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
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 it under this
Agreement.
6. 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, custodial charges and other transaction costs, if any)
purchased or sold for the Master Portfolios.
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7. Expense Limitation.
If, for any fiscal year of a Master Portfolio, the amount of the
aggregate advisory fee which the Trust would otherwise be obligated to pay with
respect to the Master 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. 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 Master Portfolios with respect to
compensation under this Agreement.
For purposes of this Section, the average daily net asset value of the
Master Portfolios shall be determined in the manner set forth in the Articles of
Incorporation and registration statement of the Trust, as amended from time to
time, which shall be promptly provided by the Trust to the Sub-Adviser and to
which the Sub-Adviser will be bound to adhere to upon receipt.
9. Limitation of Liability.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Trust for any loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or any loss resulting from willful
misfeasance, bad faith or 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. Indemnification.
The Sub-Adviser shall indemnify and hold harmless the Master Portfolios
and the Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorney's fees and other related expenses)
howsoever arising from or in connection with the performance by the Sub-Adviser
of its duties under this Agreement, provided, however, that the Sub-Adviser
shall not be required to indemnify or otherwise hold the Adviser harmless under
this Section 10 where the claim against, or the loss, liability or damage
experienced by the Master Portfolios or the Adviser, is caused by or is
otherwise directly related to the Master Portfolios' or the Adviser's own
willful misfeasance, bad faith or negligence, or to the reckless disregard by
the Adviser of its duties under this Agreement.
11. Duration and Termination.
This Agreement will become effective as of the later of (a) the date
first written above, (b) the date on which it is approved by a majority of the
outstanding voting securities of the
5
<PAGE>
Master Portfolio(s), or (c) the date(s) on which the Master Portfolio(s)
commence(s) operations. Unless sooner terminated as provided herein, this
Agreement shall continue in effect until the second anniversary of its effective
date. Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods ending on January 1, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Trust's Board of Trustees who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting such approval, and (b) by the vote of a majority of the Trust's Board of
Trustees or by the vote of a majority of the outstanding voting securities of
the Master Portfolios. Notwithstanding the foregoing, this Agreement may be
terminated as to the Master Portfolios at any time, without the payment of any
penalty, by the Adviser or 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
Master Portfolios), on sixty days' written notice to the Sub-Adviser, or by the
Sub-Adviser, on ninety days' written notice to the Trust, provided that in each
such case, notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to the contrary, in the event of the termination
of the Investment Advisory Agreement with respect to the Master Portfolios for
any reason (whether by the Trust, by the Adviser or by operation of law) this
Agreement shall terminate upon the effective date of such termination of the
Investment Advisory Agreement. This Agreement will also 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 meaning 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. To the extent required by the 1940 Act, no amendment of this Agreement
shall be effective until approved by vote of a majority of the outstanding
voting securities of the Master Portfolio(s).
13. Miscellaneous.
The captions in 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. 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 Maryland law.
14. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers of the day and year first written above.
NATIONS MASTER INVESTMENT TRUST,
on behalf of the Master Portfolios
By: ___________________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: ___________________________________________
Robert H. Gordon
President
INVESCO Global Asset Management (N.A.), Inc.
By: ___________________________________________
Kirk F. Holland
Global Partner
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 Master
Portfolio, computed daily and payable monthly at the annual rates listed below
as a percentage of the average daily net assets of the Master Portfolio under
the Sub-Adviser's management:
<TABLE>
<S> <C>
MASTER PORTFOLIO RATE OF COMPENSATION
Nations International Equity Master Portfolio 0.65% of the first $60,000,000 of the
Master Portfolio's average daily net
assets; plus, 0.55% of the next
$130,000,000 of the Master Portfolio's
average daily net assets; plus 0.45%
of the next $200,000,000 of the
Master Portfolio's average daily net
assets; plus 0.40% of the Master
Portfolio's average daily net assets in
excess of $390,000,000.
</TABLE>
8
Exhibit 99.D6
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of May 21, 1999 among NATIONSBANC ADVISORS,
INC., a North Carolina corporation (herein called the "Adviser"), PUTNAM
INVESTMENT MANAGEMENT, INC., a Massachusetts corporation (herein called the
"Sub-Adviser") and NATIONS MASTER INVESTMENT TRUST (the "Trust"), on behalf of
the portfolio(s) of the Trust as now or hereafter may be identified on Schedule
I hereto (each a "Master Portfolio" and collectively, the "Master Portfolios").
RECITALS
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company;
and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser is also registered under the Advisers Act, as
an investment adviser and engages in the business of acting as an investment
adviser; and
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser shall act as investment adviser with respect to the Master 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
Master 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.
The Adviser hereby appoints the Sub-Adviser to act as investment
sub-adviser to the Master Portfolios for the period and on the terms set forth
in this Agreement. The Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
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<PAGE>
2. Services of Sub-Adviser.
Subject to the oversight and supervision of the Adviser and the Trust's
Board of Trustees, the Sub-Adviser will provide a continuous investment program
for all of the assets of the Master Portfolios, or for such portion of the
assets of the Master Portfolios as the Adviser may determine from time to time,
including investment research and management with respect to all securities and
investments, and except for such cash balances of the Master Portfolios as may,
from time to time, be managed by the Adviser. Subject to the terms of this
Agreement, the Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Master Portfolios.
The Sub-Adviser will provide the services rendered by it under this Agreement in
accordance with the investment criteria and policies established from time to
time for the Master Portfolios by the Adviser, the Master Portfolios' investment
objectives, policies and restrictions as stated in the Prospectus(es) and
Statement(s) of Additional Information for the Master Portfolios, the operating
policies and procedures of the Master Portfolios, and resolutions of the Master
Portfolios' Board of Trustees (in each such case, to the extent such items are
delivered in writing to the Sub-Adviser). The Sub-Adviser shall not be
responsible for the administrative affairs of the Trust including, but not
limited to, portfolio accounting and pricing of the Trust's shares.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Master Portfolios' accountant for
the purpose of updating the Master Portfolios' cash
availability once a day at a mutually agreed upon time;
(b) Maintain historical tax lots for each portfolio security
held by the Master Portfolios under procedures agreed
between the parties hereto;
(c) Transmit trades to the Trust's custodian for proper
settlement in accordance with agreed procedures;
(d) Maintain all books and records with respect to the Master
Portfolios that are required to be maintained under Rule
31a-l(f) under the 1940 Act;
(e) Supply the Adviser, the Trust and the Trust's Board of
Trustees with reports, statistical data and economic
information as requested; and
(f) Prepare a quarterly broker security transaction summary and,
if requested in advance, monthly security transaction
listing for the Master Portfolios.
3. Other Covenants.
The Sub-Adviser agrees that it will:
(a) Comply with all applicable laws, rules and regulations,
including all applicable Rules and Regulations of the
Commission;
2
<PAGE>
(b) 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) Place orders pursuant to its investment determinations for
the Master Portfolios either directly with the issuer or
with any broker or dealer. In executing portfolio
transactions and selecting brokers or dealers, the
Sub-Adviser will use its best efforts to seek on behalf of
the Master Portfolios 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) provided to
the Master Portfolios 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 Adviser and 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 the Master Portfolios
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 Master
Portfolios. In 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 Adviser, 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 Adviser,
Sub-Adviser, the Trust's principal underwriter, any
affiliated person of the Sub-Adviser, or to any affiliated
person of either the Trust, the Adviser or the Trust's
principal underwriter, acting as principal in the
transaction identified to the Sub-Adviser as such an
affiliate, except to the extent permitted by the Commission;
(d) Adhere to the policies and procedures of the Trust adopted
on behalf of the Master Portfolios and delivered to the
Sub-Adviser;
3
<PAGE>
(e) Use its best efforts to perform its duties and obligations
under this Agreement without: (a) any failure of its
computer systems, or those used by it in the performance of
its duties hereunder, properly to record, store, process,
calculate or present calendar dates falling on and after,
and time spans including, September 9, 1999, January 1, 2000
or February 29, 2000 (the "Subject Dates") as a result of
the occurrence, or use of data containing any such Subject
Dates; (b) any failure of its computer systems, or those
used by it in the performance of its duties hereunder, to
calculate any information dependent on or relating to dates
on or after the Subject Dates; or (c) any loss of
functionality or performance with respect to the maintenance
of records or processing of data containing dates falling on
or after the Subject Dates; and
(f) Treat confidentially and as proprietary information of the
Trust, all records and other information relative to the
Trust maintained by the Sub-Adviser, and will not use such
records and information for any purpose other than
performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where 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.
4. 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 the Master Portfolios or the size of the position
obtainable for or disposed of by the Master Portfolios.
5. 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 the Master
Portfolios 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
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 it under this
Agreement.
4
<PAGE>
6. 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, custodial charges and other transaction costs, if any)
purchased or sold for the Master Portfolios.
7. Expense Limitation.
If, for any fiscal year of a Master Portfolio, the amount of the
aggregate advisory fee which the Trust would otherwise be obligated to pay with
respect to the Master 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. 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 Master Portfolios with respect to
compensation under this Agreement.
For purposes of this Section, the average daily net asset value of the
Master Portfolios shall be determined in the manner set forth in the Articles of
Incorporation and registration statement of the Trust, as amended from time to
time.
9. Limitation of Liability.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Trust for any loss resulting from a breach of fiduciary duty, if any, with
respect to the receipt of compensation for services or for any loss resulting
from willful misfeasance, bad faith or 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. Indemnification.
The Sub-Adviser shall indemnify and hold harmless the Master Portfolios
and the Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorney's fees and other related expenses)
resulting from willful misfeasance, bad faith or negligence on the part of the
Sub-Adviser in connection with the performance of its duties under this
Agreement or resulting from any violations of securities laws, rules,
regulations, statutes and codes, whether federal or of any state, by the
Sub-Adviser.
5
<PAGE>
11. Duration and Termination.
This Agreement will become effective as of the later of (a) the date
first written above, (b) the date on which it is approved by a majority of the
outstanding voting securities of the Master Portfolio(s), or (c) the date(s) on
which the Master Portfolio(s) commence(s) operations. Unless sooner terminated
as provided herein, this Agreement shall continue in effect until the second
anniversary of its effective date. Thereafter, if not terminated, this Agreement
shall continue in effect for successive annual periods ending on January 1,
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of those members of the Trust's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting such approval, and (b) by the vote of a
majority of the Trust's Board of Trustees or by the vote of a majority of the
outstanding voting securities of the Master Portfolios. Notwithstanding the
foregoing, this Agreement may be terminated as to the Master Portfolios at any
time, without the payment of any penalty, by the Adviser or 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 Master Portfolios), on sixty days' written
notice to the Sub-Adviser, or by the Sub-Adviser, on ninety days' written notice
to the Trust, provided that in each such case, notice shall be given
simultaneously to the Adviser. In addition, notwithstanding anything herein to
the contrary, in the event of the termination of the Investment Advisory
Agreement with respect to the Master Portfolios for any reason (whether by the
Trust, by the Adviser or by operation of law) this Agreement shall terminate
upon the effective date of such termination of the Investment Advisory
Agreement. This Agreement will also 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
meaning 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. To the extent required by the 1940 Act, no amendment of this Agreement
shall be effective until approved by vote of a majority of the outstanding
voting securities of the Master Portfolio(s).
13. Miscellaneous.
The captions in 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. 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 Maryland law.
6
<PAGE>
14. Name of Sub-Adviser.
The Trust and the Adviser hereby agree not to use the name "Putnam
Investment Management, Inc." or any derivative thereof or any description of the
Sub-Adviser or any affiliates, in the Trust's Registration Statement, or in any
sales literature, advertisement or other document distributed to the public
without the consent of the Sub-Adviser; provided, however, the consent of the
Sub-Adviser shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment and/or its services hereunder or
which is required by the Securities and Exchange Commission or over state
securities authority or any other appropriate regulatory, governmental or
judicial authorities.
15. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers of the day and year first written above.
NATIONS MASTER INVESTMENT TRUST,
on behalf of the Master Portfolios
By: ________________________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: ________________________________________________
Robert H. Gordon
President
Putnam Investment Management, Inc.
By: ________________________________________________
Thomas M. Turpin
Managing Director
8
<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 Master
Portfolio, computed daily and payable monthly at the annual rates listed below
as a percentage of the average daily net assets of the Master Portfolio under
the Sub-Adviser's management:
<TABLE>
<S> <C>
MASTER PORTFOLIO RATE OF COMPENSATION
Nations International Equity Master Portfolio 0.65% of the first $60,000,000 of the
Master Portfolio's average daily net
assets; plus, 0.55% of the next
$130,000,000 of the Master Portfolio's
average daily net assets; plus 0.45%
of the next $200,000,000 of the
Master Portfolio's average daily net
assets; plus 0.40% of the Master
Portfolio's average daily net assets in
excess of $390,000,000.
</TABLE>
9
Exhibit 99.D7
FORM OF
SUB-ADVISORY AGREEMENT
NATIONS MASTER INVESTMENT TRUST
THIS AGREEMENT is made as of this 21st day of May, 1999, by and between
NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
MARSICO CAPITAL MANAGEMENT, LLC, a Delaware limited liability corporation (the
"Sub-Adviser"), and NATIONS MASTER INVESTMENT 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 "Master Portfolio" and collectively, the
"Master 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"); and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser; and
WHEREAS, the Sub-Adviser also is registered with the Commission under the
Advisers Act as an investment adviser; and
WHEREAS, the Adviser and the Trust have entered into an Investment
Advisory Agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser shall act as investment adviser with respect to the Master 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
Master 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 Master 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 Master Portfolio, including investment research and management
with respect to all securities, investments, cash and cash equivalents in each
Master Portfolio. The Sub-Adviser will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Master Portfolios and will place the daily orders for the purchase or sale of
securities.
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<PAGE>
The Sub-Adviser will provide the services rendered by it under this
Agreement in accordance with each Master 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 Master
Portfolio shares;
(d) will place orders pursuant to its investment determinations
for the Master 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 Master 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 Master 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
Master 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 Master
Portfolio and to the Trust. In addition, the Sub-Adviser is authorized to take
into account the sale of shares of the Trust in allocating purchase and sale
2
<PAGE>
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
Master 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, if any. In making investment recommendations for a
Master 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 Master 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 Master
Portfolio;
(f) will use its best efforts to perform its duties and
obligations under this Agreement without: (a) any failure of its computer
systems, or those used by it in the performance of its duties hereunder,
properly to record, store, process, calculate or present calendar dates falling
on and after, and time spans including, September 9, 1999, January 1, 2000 or
February 29, 2000 (the "Subject Dates") as a result of the occurrence, or use of
data containing any such Subject Dates; (b) any failure of its computer systems,
or those used by it in the performance of its duties hereunder, to calculate any
information dependent on or relating to dates on or after the Subject Dates; or
(c) any loss of functionality or performance with respect to the maintenance of
records or processing of data containing dates falling on or after the Subject
Dates; and
(g) 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 Master
Portfolio or the size of the position obtainable for or disposed of by a Master
Portfolio.
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<PAGE>
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 Master 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.
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 Master 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 Master 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 Master Portfolio's
administrator(s) shall reimburse such Master Portfolio for such excess in
proportion to the fees otherwise payable to them for such year.
8. COMPENSATION. For the services provided to each Master 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 Master 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 Master
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 Master 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. TERM AND APPROVAL. This Agreement shall become effective with respect
to each Master Portfolio when approved in accordance with the requirements of
the 1940 Act, and shall thereafter continue in force and effect for two years,
and may be continued from year to year with respect to each Master Portfolio
thereafter, 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
Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act);
and
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<PAGE>
(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) a Master Portfolio, without the payment of any penalty,
by vote of the Trust's Board of Trustees or by vote of a majority
of a Master Portfolio's outstanding voting securities, or by the
Adviser, upon written notice to the other parties to this
Agreement.
(b) 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.
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
Master Portfolio shall be effective until approved by vote of a majority of the
outstanding voting securities of such Master Portfolio. However, this shall not
prevent the Sub-Adviser from reducing, limiting or waiving its fee.
13. RELEASE. The names "Nations Master Investment Trust" and "Trustees of
Nations Master Investment 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 January 14, 1999, which is hereby
referred to and a copy of which is on file at the office of the Secretary of the
State of Delaware and the principal office of the Trust. The obligations of
"Nations Master Investment 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.
14. 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,"
the identifying word "Marsico" in the name of the Master Portfolios 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 sub-investment adviser to
the Master Portfolios. 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,
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<PAGE>
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 Master Portfolios or any logo or symbol
authorized by Sub-Adviser if the Trust ceases to employ Sub-Adviser or an
affiliate thereof as sub-investment adviser.
15. 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.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
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 MASTER INVESTMENT TRUST
on behalf of the Master Portfolios
By:____________________________________________
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By:____________________________________________
Edward D. Bedard
Senior Vice President
MARSICO CAPITAL MANAGEMENT, LLC
By:____________________________________________
Barbara M. Japha
President and General Counsel
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<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 Master
Portfolio, computed daily and payable monthly at the annual rates listed below
as a percentage of the average daily net assets of the Master Portfolio:
RATE OF
MASTER PORTFOLIO COMPENSATION
---------------- ------------
Nations Marsico Focused Equities Master Portfolio 0.45%
Nations Marsico Growth & Income Master Portfolio 0.45%
7
Exhibit 99.F
FORM OF
NATIONS FUNDS
DEFERRED COMPENSATION PLAN FOR
ELIGIBLE DIRECTORS/TRUSTEES
The open-end investment companies advised by NationsBank, N.A.
(Carolinas) or its affiliates (the "Nations Funds") have adopted THE NATIONS
FUNDS DEFERRED COMPENSATION PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES (the "Plan")
for the benefit of each of the directors and trustees of each of the Nations
Funds who is not an employee of any of the Nations Funds, or their distributor,
administrator or advisor, or any of their affiliates. The terms and conditions
of the Plan are set forth in the form of Deferred Compensation Agreement
attached hereto, which each of the Nations Funds is authorized to enter into
with each eligible director or trustee desiring to participate in the Plan.
Adopted as of January 25, 1995 by:
Nations Fund Portfolios, Inc.
Adopted as of January 26, 1995 by:
Nations Fund, Inc.
Nations Fund Trust
The Capitol Mutual Funds
Amended as of July 13, 1995 by:
Nations Fund, Inc.
Nations Fund Trust
The Capitol Mutual Funds
Nations Fund Portfolios, Inc.
Adopted as of February 24, 1999 by:
Nations Master Investment Trust
<PAGE>
FORM OF
NATIONS FUNDS
DEFERRED COMPENSATION AGREEMENT
AGREEMENT, made on this ____ day of __________, 1999, by and
between the registered open-end investment companies listed on Appendix A hereto
(the "Funds"), and ________________ (the "Director") residing at
_________________________________________.
WHEREAS, the Director is serving as a director/trustee of the
Funds for which he is entitled to receive directors' fees; and
WHEREAS, the Funds and the Director desire to enter into an
agreement whereby the Funds will provide to the Director a vehicle under which
the Director can defer receipt of directors' fees payable by the Funds;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Director hereby agree
as follows:
1. DEFINITION OF TERMS AND CONDITIONS
1.1 Definitions. Unless a different meaning is plainly implied by the
context, the following terms as used in this Agreement shall have the following
meanings:
(a) "Beneficiary" shall mean such person or persons designated
pursuant to Section 4.3 hereof to receive benefits after the death of the
Director.
(b) "Board of Directors" shall mean the Board of Directors of the
Fund.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of directors' fees paid
by the Fund to the Director during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or amounts of
the Director's Compensation deferred under the provisions of Section 3 of this
Agreement.
<PAGE>
(f) "Deferral Account" shall mean the account maintained to
reflect the Director's Compensation Deferrals made pursuant to Section 3 hereof
and any other credits or debits thereto.
(g) "Deferral Year" shall mean each calendar year during which the
Director makes, or is entitled to make, Compensation Deferrals under Section 3
hereof.
(h) "Retirement" shall have the meaning as set forth under the
Retirement Plan.
(i) "Retirement Plan" shall mean the "Nations Funds Retirement
Plan for Eligible Directors/Trustees."
(j) "Valuation Date" shall mean the last business day of each
calendar year and any other day upon which the Fund makes a valuation of the
Deferred Account.
1.2 Plurals and Gender. Where appearing in this Agreement the singular
shall include the plural and the masculine shall include the feminine, and vice
versa, unless the context clearly indicates a different meaning.
1.3 Directors and Trustees. Where appearing in this Agreement, "Director"
shall also refer to "Trustee" and "Board of Directors" shall also refer to
"Board of Trustees."
1.4 Headings. The headings and sub-headings in this Agreement are inserted
for the convenience of reference only and are to be ignored in any construction
of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted, and shall
be construed, as a separate agreement between the Director and each of the
Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Director may elect, on a
form provided by, and submitted to, the Secretary of the Fund, to commence
Compensation Deferrals under Section 3 hereof for the period beginning on the
later of (i) the date this Agreement is executed or (ii) the date such form is
submitted to the Secretary of the Fund.
2.2 Termination of Deferrals. The Director shall not be eligible to make
Compensation Deferrals after the earliest of the following dates:
(a) The date on which he ceases to serve as a Director of the
Fund; or
(b) The effective date of the termination of this Agreement.
2
<PAGE>
3. COMPENSATION DEFERRALS
3.1 Compensation Deferral Elections.
(a) Except as provided below, an executed deferral election on the
form described in Section 2.1 hereof, must be filed with the Secretary of the
Fund prior to the first day of the Deferral Year to which it applies. The form
shall set forth the amount of such Compensation Deferral (in whole percentage
amounts). Such election shall continue in effect for all subsequent Deferral
Years unless it is canceled or modified as provided below. Notwithstanding the
foregoing, (i) any person who is elected to the Board during a fiscal year of
the Fund may elect before becoming a Director or within 30 days after becoming a
Director to defer any unpaid portion of the retainer of such fiscal year and the
fees for any future meetings during such fiscal year by filing an election form
with the Secretary of the Fund, and (ii) Directors may elect to defer any unpaid
portion of the retainer for the fiscal year in which Deferred Compensation
Agreements are first authorized by the Board and any unpaid fees for any future
meetings during such fiscal year by submitting an election form to the Secretary
of the Fund within 30 days of such authorization.
(b) Compensation Deferrals shall be withheld from each payment of
Compensation by the Fund to the Director based upon the percentage amount
elected by the Director under Section 3.1(a) hereof.
(c) The Director may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Secretary of
the Fund a revised Compensation Deferral election form. Subject to the
provisions of Section 4.2 hereof, such change will be effective as of the first
day of the Deferral Year following the date such revision is submitted to the
Secretary of the Fund.
3.2 Valuation of Deferral Account.
(a) The Fund shall establish a bookkeeping Deferral Account to
which will be credited an amount equal to the Director's Compensation Deferrals
under this Agreement. Compensation Deferrals shall be allocated to the Deferral
Account on the first business day following the date such Compensation Deferrals
are withheld from the Director's Compensation and shall be deemed invested
pursuant to Section 3.3, below, as of the end of the calendar quarter during
which it is withheld. The Deferral Account shall be debited to reflect any
distributions from such Account. Such debits shall be allocated to the Deferral
Account as of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss equivalents
(determined as if the Deferral Account is invested in the manner set forth under
Section 3.3, below) attributable to the period following the next preceding
Valuation Date shall be credited to and/or deducted from the Director's Deferral
Account.
3
<PAGE>
3.3 Investment of Deferral Account Balance.
(a) (1) The Director may select, from various options made
available by the Fund, the investment media in which all or part of his Deferral
Account shall be deemed to be invested. The investment media available to the
Director as of the date of this Agreement are listed on Appendix B hereto.
(2) The Director shall make an investment designation on a
form provided by the Secretary of the Fund which shall remain effective until
another valid designation has been made by the Director as herein provided. The
Director may amend his investment designation as of the end of each calendar
quarter by giving written direction to the Secretary of the Fund at least thirty
(30) days prior to the end of such calendar quarter. A timely change to a
Director's investment designation shall become effective on the first day of the
calendar quarter following receipt by the Secretary of the Fund.
(3) Any changes to the investment media to be made
available to the Director, and any limitation on the maximum or minimum
percentages of the Director's Deferral Account that may be invested in any
particular medium, shall be communicated from time-to-time to the Director by
the Secretary of the Fund.
(b) Except as provided below, the Director's Deferral Account
shall be deemed to be invested in accordance with his investment designations,
provided such designations conform to the provisions of this Section. If:
(1) the Director does not furnish the Secretary of the
Fund with complete, written investment instructions, or
(2) the written investment instructions from the Director
are unclear,
then the Director's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force and effect, and he shall be deemed to have
selected the Nations Treasury Fund until such time as the Director shall provide
the Secretary of the Fund with complete investment instructions. Notwithstanding
the above, the Board of Directors, in its sole discretion, may disregard the
Director's election and determine that all Compensation Deferrals shall be
deemed to be invested in a fund determined by the Board of Directors. In the
event that any fund under which any portion of the Director's Deferral Account
is deemed to be invested ceases to exist, such portion of the Deferral Account
thereafter shall be held in the successor to such fund, subject to subsequent
deemed investment elections.
The use of the returns on the investment media to determine the
amount of the earnings credited to a Director's Deferral Account is subject to
regulatory approval. Until such approval is received, the Compensation Deferrals
of a Director under this Agreement shall be
4
<PAGE>
continuously credited with earnings in an amount determined by multiplying the
balance credited to the Deferral Account by an interest rate equal to the yield
on 90-day U.S. Treasury Bills.
The Fund shall provide an annual statement to the Director showing
such information as is appropriate, including the aggregate amount in the
Deferral Account, as of a reasonably current date.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Director's Deferral Account shall
be paid in cash, in generally equal quarterly installments over a period of five
(5) years beginning on the date the Director's retirement benefits commence
under the Retirement Plan, except that the Board of Directors, in its sole
discretion, may accelerate or extend the distribution of such Deferral Account
after the Director's termination of service as a director of the Fund.
Notwithstanding the foregoing, in the event of the liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property relating to one or more series of its shares to the
shareholders of such series (for this purpose a sale, conveyance or transfer of
the Fund's assets to a trust, partnership, association or corporation in
exchange for cash, shares or other securities with the transfer being made
subject to, or with the assumption by the transferee of, the liabilities of the
Fund shall not be deemed a termination of the Fund or such a distribution), all
unpaid amounts in the Deferral Account as of the effective date thereof shall be
paid in a lump sum on such effective date.
4.2 Termination of Agreement. The Director may elect to terminate this
Agreement at any time and, at the time of termination of this Agreement, may
elect to receive unpaid amounts in his Deferral Account in generally equal
quarterly installments over a period of five (5) years commencing either at the
time specified in Section 4.1 or commencing with the first calendar quarter
beginning after the first anniversary of the date on which the election is filed
with the Secretary of the Fund. A Director who elects to terminate a Deferred
Compensation Agreement with the Fund pursuant to this Section 4.2 shall not be
eligible to enter into a new Deferred Compensation Agreement with the Fund to be
effective to defer Compensation earned from the Fund for the year in which the
termination occurs or the next succeeding calendar year.
4.3 Death Prior to Complete Distribution of Deferral Account. Upon the
death of the Director prior to the commencement of the distribution of the
amounts credited to his Deferral Account, the balance of such Account shall be
distributed to his Beneficiary in a lump sum as soon as practicable after the
Director's death. In the event of the death of the Director after the
commencement of such distribution, but prior to the complete distribution of his
Deferral Account, the balance of the amounts credited to his Deferral Account
shall be distributed to his Beneficiary over the remaining period during which
such amounts were distributable to the Director under Section 4.1 hereof.
Notwithstanding the above, the Board of Directors, in its sole discretion, may
accelerate the distribution of the Deferral Account.
5
<PAGE>
4.4 Designation of Beneficiary. For purposes of Section 4.3 hereof, the
Director's Beneficiary shall be the person or persons so designated by the
Director in a written instrument submitted to the Secretary of the Fund. In the
event the Director fails to properly designate a Beneficiary, his Beneficiary
shall be the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Director: the
Director's (1) surviving spouse or (2) estate.
5. AMENDMENT AND TERMINATION
5.1 The Board of Directors may at any time in its sole discretion amend or
terminate this Plan; provided, however, that no such amendment or termination
shall adversely affect the right of Directors to receive amounts previously
credited to their Deferral Accounts.
6. MISCELLANEOUS
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the Director nor any other
persons shall have any interest in any specific asset or assets of the Fund by
reason of any Deferral Account hereunder, nor any rights to receive distribution
of his Deferral Account except as and to the extent expressly provided
hereunder. The Fund shall not be required to purchase, hold or dispose of any
investments pursuant to this Agreement; however, if in order to cover its
obligations hereunder the Fund elects to purchase any investments the same shall
continue for all purposes to be a part of the general assets and property of the
Fund, subject to the claims of its general creditors and no person other than
the Fund shall by virtue of the provisions of this Agreement have any interest
in such assets other than an interest as a general creditor.
(b) The rights of the Director and the Beneficiaries to the
amounts held in the Deferral Account are unsecured and shall be subject to the
creditors of the Fund. With respect to the payment of amounts held under the
Deferral Account, the Director and his Beneficiaries have the status of
unsecured creditors of the Fund. This Agreement is executed on behalf of the
Fund by an officer of the Fund as such and not individually. Any obligation of
the Fund hereunder shall be an unsecured obligation of the Fund and not of any
other person.
6.2 Agents. The Fund may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as it deems necessary
to perform its duties under this Agreement. The Fund shall bear the cost of such
services and all other expenses it incurs in connection with the administration
of this Agreement.
6.3 Liability and Indemnification. Except for its own gross negligence,
willful misconduct or willful breach of this Agreement, the Fund shall be
indemnified and held harmless
6
<PAGE>
by the Director against liability or losses occurring in connection with this
Agreement by reason of any act or omission of the Fund or any other person.
6.4 Incapacity. If the Fund shall receive evidence satisfactory to it that
the Director or any Beneficiary entitled to receive any benefit under this
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to give a valid release therefor, and that
another person or an institution is then maintaining or has custody of the
Director or Beneficiary and that no guardian, committee or other representative
of the estate of the Director or Beneficiary shall have been duly appointed, the
Fund may make payment of such benefit otherwise payable to the Director or
Beneficiary to such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who shall be an
adult, a guardian of the minor or a trust company), and the release of such
other person or institution shall be a valid and complete discharge for the
payment of such benefit.
6.5 Cooperation of Parties. All parties to this Agreement and any person
claiming any interest hereunder agree to perform any and all acts and execute
any and all documents and papers which are necessary or desirable for carrying
out this Agreement or any of its provisions.
6.6 Governing Law. This Agreement is made and entered into in the State of
North Carolina and all matters concerning its validity, construction and
administration shall be governed by the laws of that State.
6.7 No Guarantee of Directorship. Nothing contained in this Agreement
shall be construed as a guaranty or right of any Director to be continued as a
Director of one or more of the Nations Funds (or of a right of a Director to any
specific level of Compensation) or as a limitation of the right of any of the
Nations Funds, by shareholder action or otherwise, to remove any of its
directors.
6.8 Counsel. The Fund may consult with legal counsel with respect to the
meaning or construction of this Agreement, its obligations or duties hereunder
or with respect to any action or proceeding or any question of law, and it shall
be fully protected with respect to any action taken or omitted by it in good
faith pursuant to the advice of legal counsel.
6.9 Spendthrift Provision. The Director's and Beneficiaries' interests in
the Deferral Account shall not be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charges and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any portion of any such right hereunder be in any
manner payable to any assignee, receiver or trustee, or be liable for such
person's debts, contracts, liabilities, engagements or torts, or be subject to
any legal process to levy upon or attach.
6.10 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service, addressed to
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<PAGE>
the Director at the home address set forth in the Fund's records and to the Fund
at its principal place of business, provided that all notices to the Fund shall
be directed to the attention of the Secretary of the Fund or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
6.11 Entire Agreement. This Agreement contains the entire understanding
between the Fund and the Director with respect to the payment of non-qualified
elective deferred compensation by the Fund to the Director.
6.12 Interpretation of Agreement. Interpretation of, and determinations
related to, this Agreement made by the Fund in good faith, including any
determinations of the amounts of the Deferral Account, shall be conclusive and
binding upon all parties; and the Fund shall not incur any liability to the
Director for any such interpretation or determination so made or for any other
action taken by it in connection with this Agreement in good faith.
6.13 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the Fund and its successors and assigns and to
the Director and his heirs, executors, administrators and personal
representatives.
6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
8
<PAGE>
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.15 Execution of Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
NATIONS FUND TRUST
NATIONS FUND, INC.
THE CAPITOL MUTUAL FUNDS
NATIONS FUNDS PORTFOLIOS, INC.
NATIONS MASTER INVESTMENT TRUST
____________________________________ By:____________________________
Witness Name: Richard H. Blank, Jr.
Title: Secretary
____________________________________
Witness Director
<PAGE>
APPENDIX A
LIST OF FUNDS
Nations Fund Trust
Nations Fund, Inc.
The Capitol Mutual Funds
Nations Funds Portfolios, Inc.
Nations Master Investment Trust
<PAGE>
APPENDIX B
LIST OF ELIGIBLE INVESTMENT MEDIA
Nations Fund Trust
- ------------------
Nations Value Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Special Equity Fund
Nations Equity Index Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Managed Bond Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Adjustable Rate Government Fund
Nations Mortgage-Backed Securities Fund
Nations Fund, Inc.
- ------------------
Nations Prime Fund
Nations Treasury Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Government Securities Fund
Nations Fund Portfolios, Inc.
- -----------------------------
Nations Global Income Fund
Nations Pacific Growth Fund
Nations Emerging Markets Fund
Nations Master Investment Trust
- -------------------------------
Nations Blue Chip Master Portfolio
Nations Intermediate Bond Master Portfolio
Nations Marsico Focused Equities Master Portfolio
Nations Marsico Growth & Income Master Portfolio
Nations International Equity Master Portfolio
<PAGE>
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
TO: Secretary of the Nations Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _______________ __, 1999 by and between the undersigned
and the Nations Funds, I hereby make the following election:
Deferral of Compensation
Starting with Compensation to be paid to me with respect to
services provided by me to the Nations Funds after the date this election form
is provided to the Nations Funds, and for all period thereafter (unless
subsequently amended by way of a new election form), I hereby elect that _____
percent (_____%) of my Compensation (as defined under the Agreement) be deferred
and that the Fund establish a bookkeeping account credited with amounts equal to
the amount so deferred (the "Deferral Account"). The Deferral Account shall be
further credited with income equivalents as provided under the Agreement. Each
Compensation Deferral (as defined in the Agreement) shall be deemed invested as
of the end of the calendar quarter during which such Compensation Deferral is
withheld from my Compensation.
I understand that the amounts held in the Deferral Account shall
remain the general assets of the Nations Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of the Nations Funds. I
may not sell, encumber, pledge, assign or otherwise alienate the amounts held
under the Deferral Account.
<PAGE>
I hereby agree that the terms of the Agreement are incorporated
herein and are made a part hereof. Dated as of the day and year first above
written.
WITNESS: DIRECTOR:
______________________________ ____________________________
WITNESS: RECEIVED:
_________________________ ____________________________
_________________________ NATIONS FUNDS
By: _______________________
Date: ______________________
<PAGE>
DEFERRED COMPENSATION AGREEMENT
INVESTMENT DIRECTION FORM
TO: Secretary of the Nations Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _____________ ___, 1999 by and between the undersigned
and the Nations Funds, I hereby elect that my Deferral Account under the
Agreement be considered to be invested as follows (in multiples of 5%, with a
minimum percentage allocation of 10% per designated Fund):
FUND NAME PERCENTAGE ALLOCATION
--------- ---------------------
- ------------------------- ------%
- ------------------------- ------%
- ------------------------- ------%
- ------------------------- ------%
- ------------------------- ------%
TOTAL 100%
I acknowledge that I may amend this Investment Direction in the
manner, and at such time, as permitted under the Agreement. Furthermore, I
acknowledge that, pursuant to Section 3.3(b) of the Agreement, the Fund has
reserved the right to disregard the elections made above to consider my Deferral
Account to be deemed to be invested in a fund of its choosing and that each
Compensation Deferral (as defined in the Agreement) shall be deemed invested as
of
<PAGE>
end of the calendar quarter during which such Compensation Deferral is withheld
from my compensation.
WITNESS: DIRECTOR:
____________________________________ ___________________________
WITNESS: RECEIVED:
_________________________ __________________________
__________________________ NATIONS FUNDS
By: _______________________
Date: ______________________
<PAGE>
DEFERRED COMPENSATION AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Secretary of the Nations Funds
FROM:
DATE:
With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ____________ ___, 1999 by and between the undersigned
and the Nations Funds, I hereby make the following beneficiary designations:
I. Primary Beneficiary
I hereby appoint the following as my Primary Beneficiary(ies) to
receive at my death the amounts held in my Deferral Account under the Agreement.
In the event I am survived by more than one Primary Beneficiary, such Primary
Beneficiaries shall share equally in such amounts unless I indicate otherwise on
an attachment to this form:
- --------------------------------------------------------------------------------
Name Relationship
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
II. Secondary Beneficiary
In the event I am not survived by any Primary Beneficiary, I
hereby appoint the following as my Secondary Beneficiary(ies) to receive death
benefits under the Agreement. In the event I am survived by more than one
<PAGE>
Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless I
indicate otherwise on an attachment to this form:
- -------------------------------------------------------------------------------
Name Relationship
- --------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State Zip
I understand that I may revoke or amend the above designations at
any time. I further understand that if I am not survived by a Primary or
Secondary Beneficiary, my Beneficiary shall be as set forth under the Agreement.
WITNESS: DIRECTOR:
- ------------------------------------ --------------------------
WITNESS: RECEIVED:
- ------------------------- --------------------------
_________________________ NATIONS FUNDS
By: _______________________
Date: ______________________
Exhibit 99.G
FORM OF
CUSTODY AGREEMENT
THIS AGREEMENT is made as of the 21st day of May, 1999 by and
between The Bank of New York, a New York corporation authorized to do a banking
business ("Custodian"), and Nations Master Investment Trust, a Delaware business
trust (the "Trust").
W I T N E S S E T H
WHEREAS, the Trust is a registered open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain Custodian to serve as
custodian for the Trust, on behalf of its portfolios listed on Schedule I
(individually a "Portfolio" and collectively the "Portfolios") and to provide
the services described herein, and Custodian is willing to serve and to provide
such services; and
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the Trust and Custodian hereby agree as follows:
1. Appointment. The Trust hereby appoints Custodian to act as custodian
of its portfolio securities, cash and other property on the terms set forth in
this Agreement. Custodian accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Paragraph 23 hereof. Custodian agrees to comply with all relevant provisions of
the 1940 Act and applicable rules and regulations thereunder.
The Trust may from time to time issue separate series or classes, and
classify and reclassify shares of any such series or class. The Trust shall
promptly specify to Custodian in writing such series or classes, or any
reclassification and thereafter Custodian shall identify to each such series or
class Property, as hereinafter defined, belonging to such series or class, and
such reports, confirmations and notices to the Trust as are called for under
this Agreement shall identify the series or class to which such report,
confirmation or notice pertains.
2. Delivery of Documents. The Trust has furnished Custodian with copies
properly certified or authenticated of each of the following:
(a) votes of the Trust's Board of Trustees authorizing the
appointment of Custodian as custodian of portfolio securities, cash and other
property of the Trust, respectively, and approving and consenting to this
Agreement;
(b) schedules identifying and containing the signatures of all
of the Trust's officers and any other persons authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of the Portfolios of the Trust;
(c) the Trust's current Registration Statement on Form N-1A
under the 1940 Act, as filed with the Securities and Exchange Commission (the
"SEC"), relating to shares of beneficial interest of the Trust, without par
value (the "Shares");
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(d) the current prospectuses and statement of additional
information of each of the Portfolios, including all amendments and supplements
thereto (the "Prospectuses"); and
(e) a copy of the opinion of counsel for the Trust, filed with
the SEC as part of the Trust's current registration statement.
The Trust will furnish Custodian from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to any of the foregoing, if any.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means any of the Trust's officers, and any other person,
whether or not any such person is an officer or employee of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral and Written
Instructions to Custodian on behalf of the Trust and listed on a schedule
provided to Custodian pursuant to Section 2 of this Agreement. Authorized
Persons duly authorized by the Board of Trustees of the Trust to buy and sell
foreign currency on a spot and forward basis and options to buy and sell foreign
currency are denoted by an asterisk thereon.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees and any book-entry system maintained by a clearing agency
registered with the SEC under Section 17A of the Securities Exchange Act of 1934
(the "1934 Act").
(c) "Composite Currency Unit". Shall mean the European
Currency Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be constituted from
time to time.
(d) "Currency". Shall mean money denominated in a lawful
currency of any country or the European Currency Unit.
(e) "FX Transaction". Shall mean any transaction for the
purchase by one party of an agreed amount in one Currency against the sale by it
to the other party of an agreed amount in another Currency.
(f) "Instructions". Shall mean instruction communications
transmitted by appropriately safeguarded (whether by password protection or
other means) electronic or telecommunications media including but not limited to
S.W.I.F.T., LASER, computer-to-computer interface, dedicated transmission line
and tested telex.
(g) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by Custodian from
an Authorized Person or from a person reasonably believed by Custodian to be an
Authorized Person.
(h) "Officer's Certificate". The term "Officer's Certificate"
as used in this Agreement means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
Custodian signed or reasonably believed by Custodian
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<PAGE>
to be signed by two officers of the Trust listed on a schedule provided to
Custodian pursuant to Section 2 of this Agreement.
(i) "Property". The term "Property", as used in this Agreement,
means:
(i) any and all securities and other property of the Trust
which the Trust may from time to time deliver to Custodian, as applicable, or
which Custodian may from time to time hold for the Trust;
(ii) all income in respect of any securities or other
property described in immediately preceding clause (i);
(iii) all proceeds of sales of any of such securities or
other property described in preceding clause (i) actually received by Custodian;
and
(iv) proceeds of the sale of Shares received by Custodian
from time to time from or on behalf of the Trust.
(j) "Securities Depository". As used in this Agreement, the
term "Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Trust's Board of Trustees approving deposits by Custodian
therein.
(k) "Written Instructions". As used in this Agreement,
"Written Instructions" means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
Custodian, signed or reasonably believed by Custodian to be signed by an
appropriate number of Authorized Person(s), and the term Written Instructions
shall also include Instructions, except that Instructions need not be signed or
reasonably believed to be signed by any Authorized Person(s) where such
Instructions are transmitted by Software pursuant to Paragraph 26A. A fax
receipt or comparable confirmation of transmission of any Written Instructions
shall be deemed evidence of actual receipt by Custodian.
4. Delivery and Registration of the Property. The Trust shall deliver
or cause to be delivered to Custodian all securities and all monies owned by the
Portfolios, including cash received for the issuance of Shares, at any time
during the period of this Agreement, except for securities and monies to be
delivered to any sub-custodian appointed, with approval of the Trust, by
Custodian pursuant to Paragraphs 7, 27, or 28(g) hereof. Custodian will not be
responsible for such securities and such monies until actually received by it.
All securities delivered to Custodian or any such sub-custodian (other than in
bearer form) shall be registered in the name of the Portfolio or in the name of
a nominee of a Portfolio or in the name of Custodian or any nominee of Custodian
(with or without indication of fiduciary status) or in the name of any
sub-custodian or any nominee of such sub-custodian appointed, with approval of
the Trust, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be properly
endorsed and in form for transfer satisfactory to Custodian.
5. Voting and Other Rights. With respect to all securities, however
registered, it is understood that the voting and other rights and powers shall
be exercised by the Trust.
3
<PAGE>
Custodian's only duty with respect to such rights shall be to mail to the Trust
within two (2) business days following receipt by Custodian any documents
received by Custodian as custodian, including notices of corporate action,
proxies, proxy soliciting materials and offering circulars, with any elections
or proxies for securities registered in a nominee name executed by such nominee.
In addition, Custodian shall provide notice of Custodian's receipt of such
documents by electronic means (e.g., posting notice on LASER), as agreed between
the parties. Where warrants, options, tenders or other securities have fixed
expiration dates, the Trust understands that in order for Custodian to act,
Custodian must receive the Trust's instructions at its offices in New York,
addressed as Custodian may from time to time request, by no later than noon (New
York City time) at least one (1) business day prior to the last scheduled date
to act with respect thereto (or such earlier date or time as Custodian may
reasonably notify the Trust). Absent Custodian's timely receipt of such
instructions, such instructions will expire without liability to Custodian.
Custodian shall have no duty to forward to the Trust any annual, quarterly or
special reports issued by companies whose securities are held by Custodian
hereunder.
6. Receipt and Disbursement of Money.
(a) Custodian shall open and maintain a custody account for
each Portfolio of the Trust, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement, and, subject to Paragraphs 7, 27, or
28(g) hereof, shall hold in such account, subject to the provisions hereof, all
cash received by it from or for the Portfolios. Custodian shall make payments of
cash to, or for the account of, each Portfolio from such cash only: (i) for the
purchase of securities for the Portfolios as provided in Paragraph 14 hereof;
(ii) upon receipt of an Officer's Certificate for the payment of dividends or
other distributions on or with respect to Shares, or for the payment of
interest, taxes, administration, distribution or advisory fees or expenses which
are to be borne by the Portfolios under the terms of this Agreement and, with
respect to each Portfolio, and under the terms of any investment advisory
agreements, administration agreements or distribution agreements; (iii) upon
receipt of Written Instructions for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Portfolios and
held by or to be delivered to Custodian; (iv) to a sub-custodian pursuant to
Paragraphs 7, 27, or 28(g) hereof; (v) for the redemption of Shares; or (vi)
upon receipt of an Officer's Certificate for other corporate purposes.
(b) Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as Custodian
for the Portfolios.
7. Receipt of Securities.
(a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g)
hereof, and except as otherwise directed by Oral or Written Instructions
described in Paragraph 11 hereof, Custodian shall hold and physically segregate
in a separate account with respect to each Portfolio, identifiable from those of
any other person, all securities and non-cash property received by it for the
Portfolios. All such securities and non-cash property are to be held or disposed
of by Custodian for each Portfolio pursuant to the terms of this Agreement. In
the absence of Written Instructions accompanied by a certified resolution
authorizing the specific transaction by the Trust's Board of Trustees, and
subject to Paragraph 25 hereof, Custodian shall have no power or authority to
withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such
4
<PAGE>
securities and investments, except in accordance with the express terms provided
for in this Agreement. In no case may any trustee, officer, employee or agent of
the Trust withdraw any securities. In connection with its duties under this
Paragraph 7(a), Custodian may enter into sub-custodian agreements with other
banks or trust companies for the receipt of certain securities and cash to be
held by Custodian for the account of a Portfolio pursuant to this Agreement,
provided Custodian obtains the prior written approval of the Trust to any such
sub-custody arrangement. Custodian will provide the Trust with a copy of each
sub-custodian agreement it executes pursuant to this Paragraph 7(a). Custodian
shall be liable for acts or omissions of any such sub-custodian selected by it
pursuant to this Paragraph 7(a), under the standards of care provided for
herein, except for any such sub-custodian engaged at the specific direction of
the Portfolios. Notwithstanding anything herein to the contrary, this Paragraph
7(a) shall not apply to Custodian's engagement of foreign sub-custodians, which
shall instead be governed by Paragraph 27 hereof.
(b) Promptly after the close of business on each day,
Custodian shall furnish the Trust with confirmations and a summary of all
transfers to or from the account of each Portfolio during said day. Where
securities are transferred to the account of any Portfolio established at a
Securities Depository or the Book Entry System pursuant to Paragraph 8 herein,
Custodian shall also, by book-entry or otherwise, identify as belonging to such
Portfolio the quantity of securities in a fungible bulk of securities registered
in the name of Custodian (or its nominee) or shown in Custodian's account on the
books of a Securities Depository or the Book-Entry System. At least monthly and
from time to time, Custodian shall furnish the Trust with a detailed statement
of the Property held for each Portfolio under this Agreement.
(c) Notwithstanding any provision elsewhere contained herein,
Custodian shall not be required to obtain possession of any instrument or
certificate representing any futures contract, any option, or any futures
contract option until after it shall have determined, or shall have received an
Officer's Certificate from the Trust stating that any such instruments or
certificates are available. The Trust shall deliver to Custodian such an
Officer's Certificate no later than the business day preceding the availability
of any such instrument or certificate. Prior to such availability, Custodian
shall comply with the 1940 Act in connection with the purchase, sale,
settlement, closing out or writing of futures contracts, options, or futures
contract options by making payments or deliveries specified in such Officer's
Certificates or Written Instructions received by Custodian in connection with
any such purchase, sale, writing, settlement or closing out upon its receipt
from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by Custodian to be in the form customarily used
by brokers, dealers, or future commission merchants with respect to such futures
contracts, options, or futures contract options, as the case may be, confirming
that the same is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of Custodian (or any nominee of
Custodian) as Custodian for the Portfolio, provided, however, that
notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments
to or deliveries from any margin account, and payments with respect to future
contracts, options, or future contract options to which a margin account
relates, shall be made in accordance with the terms and conditions of the
Trust's relevant margin account agreement. Whenever any such instruments or
certificates are available, Custodian shall, notwithstanding any provision in
this Agreement to the contrary, make payment for any futures contract, option,
or futures contract option for which such instruments or such certificates are
available against the delivery to
5
<PAGE>
Custodian of such instrument or such certificate, and deliver any futures
contract, option or futures contract option for which such instruments or such
certificates are available only against receipt by Custodian of payment
therefor. Any such instrument or certificate delivered to Custodian shall be
held by Custodian hereunder in accordance with, and subject to, the provisions
of this Agreement.
8. Use of Securities Depository or the Book-Entry System. The Trust
shall deliver to Custodian a certified vote of the Board of Trustees of the
Trust approving, authorizing and instructing Custodian on a continuous and
ongoing basis until instructed to the contrary by Written Instructions: (i) to
deposit in a Securities Depository or the Book-Entry System all securities of
the Portfolios held hereunder eligible for deposit therein, and (ii) to utilize
a Securities Depository or the Book-Entry System to the extent possible in
connection with the performance of its duties hereunder, including without
limitation, settlements of purchases and sales of securities by the Portfolios,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Without limiting
the generality of such use, the following provisions shall apply thereto:
(a) Securities and any cash of the Portfolios deposited by
Custodian in a Securities Depository or the Book-Entry System will at all times
be segregated from any assets and cash controlled by Custodian in other than a
fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof, Custodian
and its sub-custodians, if any, will pay out money only upon receipt of
securities and will deliver securities only upon receipt of money, absent
Written Instructions to the contrary.
(b) All books and records maintained by Custodian that relate
to the Portfolios' participation in a Securities Depository or the Book-Entry
System will at all times during Custodian's regular business hours be open to
inspection by the Trust's duly authorized employees or agents and the Trust's
independent auditors in accordance with applicable regulations, it being
understood, however, that such records may be kept in an off-site Custodian
storage location and the Trust will be furnished with all information in respect
of the services rendered to it as it may require.
(c) Custodian will provide the Trust with copies of any report
obtained by Custodian on the system of internal accounting control of the
Securities Depository or Book-Entry System promptly after receipt of such a
report by Custodian. Custodian will also provide the Trust with such reports on
its own system of internal control as the Trust may reasonably request from time
to time.
9. Instructions Consistent With the Charter, Etc. Unless otherwise
provided in this Agreement, Custodian shall act only upon Officer's
Certificates, Oral Instructions and/or Written Instructions. Custodian may
assume that any Officer's Certificate, Oral Instructions or Written Instructions
received hereunder are not in any way inconsistent with any provision of the
Declaration of Trust or By-Laws or any vote of the Trust's Board of Trustees, or
any committee thereof. Custodian shall be entitled to rely upon any Oral
Instructions or Written Instructions actually received by Custodian pursuant to
this Agreement, and upon any certificate, oral instructions, or written
instructions reasonably believed by Custodian to be an Officer's Certificate,
Oral Instructions or Written Instructions. The Trust agrees to forward to
Custodian,
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Written Instructions confirming Oral Instructions in such manner that the
Written Instructions are received by Custodian at the close of business of the
same day that such Oral Instructions are given to Custodian. The Trust agrees
that the fact that such confirming Written Instructions are not received by
Custodian shall in no way affect the validity of any of the transactions
authorized by the Trust by giving Oral Instructions, and that Custodian's
records with respect to the content of Oral Instructions shall be controlling.
10. Transactions Not Requiring Instructions. Custodian is authorized to
take the following action without Oral Instructions, Written Instructions, or an
Officer's Certificate:
(a) Collection of Income and Other Payments. Custodian shall
subject to Paragraph 28(f) hereof:
(i) Collect and receive for the account of any Portfolio,
all income and other payments and distributions, including (without limitation)
stock dividends, rights, warrants and similar items, included or to be included
in the Property of any Portfolio, and promptly advise the Trust of such receipt
and shall credit such income, as collected, to such Portfolio of the Trust. From
time to time, Custodian may elect, but shall not be so obligated, to credit the
account with interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor, central
depository, Securities Depository, broker or other agent employed by the Trust
or Custodian. Any such crediting and posting shall be at the Trust's sole risk,
and Custodian shall be authorized to reverse (A) any such advance posting in the
event it does not receive good funds from any such payor, central depository,
Securities Depository, broker or agent, and (B) any other payment or crediting,
including, without limitation, payments made by check or draft, in the event it
does not receive good funds or final payment;
(ii) With respect to securities of foreign issue, and
subject to Paragraph 27 hereof, effect collection of dividends, interest and
other income, and to promptly transmit to the Trust all reports, written
information or notices actually received by Custodian as Custodian, including
notices of any call for redemption, offer of exchange, right of subscription,
reorganization, or other proceedings affecting such securities, or any default
in payments due thereon. It is understood, however, that Custodian shall be
under no responsibility for any failure or delay in effecting such collections
or giving such notice with respect to securities of foreign issue, regardless of
whether or not the relevant information is published in any financial service
available to it unless such failure or delay is due to Custodian's own
negligence. Collections of income in foreign currency are, to the extent
possible, to be converted into United States dollars unless otherwise instructed
in writing, and in effecting such conversion Custodian may use such methods or
agencies as it may see fit, including the facilities of its own foreign division
at customary rates. All risk and expenses incident to such collection and
conversion are for the account of the Portfolios and Custodian shall have no
responsibility for fluctuations in exchange rates affecting any such
conversions;
(iii) Endorse and deposit for collection in the name of
the Trust and each of its Portfolios, checks, drafts, or other orders for the
payment of money on the same day as received;
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(iv) Receive and hold for the account of each of the
Portfolio's securities received by the Portfolios as a result of a stock
dividend, share split-up or reorganization, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities issued with
respect to any portfolio securities of the Portfolios held by Custodian
hereunder;
(v) Present for payment and collect the amount payable
upon all securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable, but, with
respect to calls, early redemptions, or early retirements, only if Custodian
either: (i) receives a written notice of the same, or (ii) notice of the same
appears in one or more of the publications then listed in Appendix A hereto,
which Appendix may be amended to add other publications at any time by Custodian
without prior notice to or consent from the Trust and which may be amended to
delete a publication with the prior notice and consent from the Trust;
(vi) Subject to Paragraphs 28(e) and (f) hereof, take any
action which may be necessary and proper in connection with the collection and
receipt of such income and other payments and the endorsement for collection of
checks, drafts and other negotiable instructions; and
(vii) With respect to domestic securities, to exchange
securities in temporary form for securities in definitive form, to effect an
exchange of the shares where the par value of stock is changed, and to surrender
securities at maturity or when advised by the Trust or the investment adviser to
the Trust of an earlier call for redemption, against payment therefor in
accordance with accepted industry practice. When fractional shares of stock of a
declaring corporation are received as a stock distribution, Custodian is
authorized to sell the fraction received and credit the Trust's account. Unless
specifically instructed to the contrary in writing, Custodian is authorized to
exchange securities in bearer form for securities in registered form. If any
Property registered in the name of a nominee of Custodian is called for partial
redemption by the issuer of such Property, Custodian is authorized to allot the
called portion to the respective beneficial holders of the Property in such
manner deemed to be fair and equitable by Custodian in its reasonable
discretion.
(b) Miscellaneous Transactions. Custodian is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of
the Trust in accordance with street delivery custom;
(ii) for the exchange for interim receipts or temporary
securities for definitive securities;
(iii) for transfer of securities into the name of the
Portfolios or Custodian or a nominee of either, or for exchange of securities
for a different number of bonds, certificates, or other evidence, representing
the same aggregate face amount or number of units
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<PAGE>
bearing the same interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be delivered to
Custodian.
11. Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions, and not otherwise, Custodian, directly or through the use
of a Securities Depository or the Book-Entry System, shall:
(a) execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Portfolios as owners of any
securities may be exercised;
(b) deliver any securities held for any Portfolio against
receipt of other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(c) deliver any securities held for any Portfolio to any
protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, against receipt of such certificates or
deposit, interim receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) make such transfers or exchanges of the assets of any
Portfolio and take such other steps as shall be stated in said instructions to
be for the purposes of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Portfolios;
(e) subject to Paragraph 25(b) hereof, release securities
belonging to any Portfolio to any bank or trust company for the purpose of
pledge or hypothecation to secure any loan incurred by such Portfolio; provided,
however, that securities shall be released only upon payment to Custodian of the
monies borrowed, except that in cases where additional collateral is required to
secure a borrowing already made, subject to proper prior authorization, further
securities may be released for that purpose; and pay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;
(f) deliver any securities held for any Portfolio upon the
exercise of a covered call option written by such Portfolio on such securities;
(g) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on behalf of such
Portfolio, but subject to Paragraph 28(m) hereof, only on receipt of payment
therefor; and pay out monies of such Portfolio in connection with such
repurchase agreements, but only upon the delivery of the securities;
(h) otherwise transfer, exchange or deliver securities in
accordance with Oral or Written Instructions specifying the purpose of such
transfer, including without limitation, loans of securities, short sales, or
reverse repurchase agreements, and subject to Paragraph 7(a) hereof.
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12. Segregated Accounts. Custodian shall upon receipt of Written or
Oral Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of any Portfolio, into which account or accounts shall
be credited, but only pursuant to an Officer's Certificate or Written
Instructions specifying the particular securities and/or amount of cash, cash
and/or securities, including securities in the Book-Entry System: (i) for the
purposes of compliance by the Portfolios and the Trust with the procedures
required by a securities or option exchange, (ii) for the purpose of compliance
by the Portfolios and the Trust with the 1940 Act and Release No. 10666 or any
subsequent release or releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies, and (iii) for other
proper corporate purposes.
13. Dividends and Distributions.
(a) The Trust shall furnish Custodian with appropriate
evidence of action by the Trust's Board of Trustees declaring and authorizing
the payment of any dividends and distributions. Upon receipt by Custodian of an
Officer's Certificate with respect to dividends and distributions declared by
the Trust's Board of Trustees and payable to shareholders of any Portfolio who
are entitled to receive cash for fractional shares and those who have elected in
the proper manner to receive their distributions on dividends in cash, and in
conformance with procedures mutually agreed upon by Custodian and the Trust, and
the Trust's administrator or transfer agent, Custodian shall pay to the
Portfolio's transfer agent, as agent for the shareholders, an amount equal to
the amount indicated in said Officer's Certificate as payable by the Portfolio
to such shareholders for distribution in cash by the transfer agent to such
shareholders.
(b) Custodian may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that the Trust uses (each an
"FCM Agreement"), pursuant to which the Portfolios' margin deposits in any
transactions involving futures contracts and options on futures contracts will
be held by Custodian in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between the FCM and the Trust ("FCM Contract"), SEC rules
governing such segregated accounts, Commodity Futures Trading Commission
("CFTC") rules and the rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into by Custodian upon receipt by Custodian of
Written Instructions from the Trust which state that: (i) an FCM Contract has
been entered into; (ii) the Trust is in compliance with all the rules and
regulations of the CFTC; and (iii) the FCM Agreement is acceptable to the Trust.
Transfers of initial margin shall be made into an FCM Account only upon Written
Instructions; transfers of premium and variation margin may be made into an FCM
Account pursuant to Oral Instructions. Transfers of funds from an FCM Account to
the FCM for which Custodian holds such an account may only occur in accordance
with the terms of the FCM Agreement.
14. Purchase of Securities. Promptly after each purchase of securities
by the Trust on behalf of any Portfolio, the Trust shall deliver to Custodian
Oral or Written Instructions specifying with respect to each such purchase: (a)
the name of the issuer and the title of the securities; (b) the number of shares
of the principal amount purchased and accrued interest, if any; (c) the dates of
purchase and settlement; (d) the purchase price per unit; (e) the total amount
payable upon such purchase; (f) the name of the person from whom or the broker
through whom the purchase was made; and (g) the Portfolio for which the purchase
was made. Custodian shall
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upon receipt of securities purchased by or for the Trust pay out of the monies
held for the account of the Trust the total amount payable to the person from
whom or the broker through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Oral or Written
Instructions.
15. Sales of Securities. Promptly after each sale of securities by the
Portfolios or the Trust shall deliver to Custodian Oral or Written Instructions,
specifying with respect to each such sale: (a) the name of the issuer and the
title of the security; (b) the number of shares or principal amount sold, and
accrued interest, if any; (c) the dates of sale; (d) the sale price per unit;
(e) the total amount payable to the Trust upon such sale; (f) the name of the
broker through whom or the person to whom the sale was made; and (g) the
Portfolio for which the sale was made. Custodian shall, subject to Paragraph
28(m) hereof, deliver the securities against payment of the total amount payable
to the Trust upon such sale, provided that the same conforms to the total amount
payable as set forth in such Oral and Written Instructions.
16. Records. The books and records pertaining to the Portfolios and the
Trust which are in the possession of Custodian shall be the property of the
Trust. Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws, rules and regulations. The
SEC, the Trust, or the Trust's authorized representatives, shall have access to
such books and records at all times during Custodian's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided by Custodian to the Trust or the Trust's authorized
representative, and the Trust shall reimburse Custodian reasonable expenses for
providing such copies. Upon reasonable request of the Trust, Custodian shall
provide in hard copy, tape or on micro-film, or such other medium as agreed to
among the Trust and Custodian, and any books and records maintained by
Custodian.
17. Reports.
(a) Custodian shall furnish the Trust the following reports:
(i) such periodic and special reports as the Trust may
reasonably request from time to time;
(ii) a monthly statement summarizing all transactions and
entries for the account of each Portfolio;
(iii) a monthly report of portfolio securities belonging
to each Portfolio showing the adjusted average cost of each issue and market
value at the end of such month;
(iv) a monthly report of the cash account of each
Portfolio showing disbursements;
(v) the reports to be furnished to the Trust pursuant to
Rule 17f-4 under the 1940 Act; and
(vi) such other information as may be agreed upon from
time to time between the Trust and Custodian.
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(b) Subject to Paragraphs 5 and 27(g) hereof, Custodian shall
transmit promptly to the Trust any proxy statement, proxy materials, notice of a
call or conversion or similar communications actually received by Custodian as
custodian of the Property.
(c) Custodian shall report as the market value at the end of
each month the last closing bid, offer or sale price to the extent, and as the
same, is furnished to Custodian by a pricing or similar service utilized or
subscribed to by Custodian. Custodian shall not be responsible for, have any
liability with respect to, or be under any duty to inquire into, nor deemed to
make any assurances with respect to, the accuracy or completeness of such
information, even if The Bank of New York in performing services for others,
including services similar to those performed hereunder, receives different
valuations of the same or different securities of the same issuer.
18. Cooperation with Accountants. Custodian shall cooperate with the
Trust's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement, to assure
that the necessary information is made available to such accountants.
19. Confidentiality. Custodian agrees on behalf of itself and its
employees to treat all record and other information relative to the Trust, its
prior, present or potential shareholders, its service providers and its prior,
present or potential customers, as confidential information, and to protect and
safeguard the same to the extent required by applicable law, provided, however,
that Custodian may make such disclosure as required by applicable law,
regulation, court order, decrees or legal process and upon receipt of any of the
foregoing requiring such disclosure, Custodian's only obligation shall be to
notify the Trust thereof. Custodian further agrees not to otherwise use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust.
20. Equipment Failures. In the event of equipment failures beyond
Custodian's control, Custodian shall take reasonable steps to minimize service
interruptions but shall not have any further liability with respect thereto.
Notwithstanding the foregoing, Custodian shall maintain sufficient back up
electronic data processing equipment to enable Custodian to fulfill its
obligations under this Agreement consistent with standard industry practices.
21. Right to Receive Advice.
(a) Advice of Portfolio. If Custodian shall be in doubt as to
any action to be taken or omitted by it, either may request, and shall receive,
from the Trust clarification or advice, including Oral or Written Instructions.
(b) Advice of Counsel. If Custodian shall be in doubt as to
any question of law involved in any action to be taken or omitted by Custodian,
it may request at its option advice from its own counsel, at its own expense, or
advice from the Trust's counsel.
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Custodian
pursuant to subparagraph (a) of this paragraph and advice received by Custodian
pursuant to subparagraph (b) of this paragraph, Custodian shall be entitled to
rely on and follow the advice received pursuant to subparagraph (b) alone.
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(d) Protection of Custodian. Custodian shall be protected in
any action or inaction which it takes or omits to take in reliance on any
directions, advice or Oral or Written Instructions received pursuant to
subparagraphs (a) or (b) of this section which it, after receipt of any such
directions, advice or Oral or Written Instructions, in good faith reasonably
believes to be consistent with such directions, advice or Oral or Written
Instructions, as the case may be. Nothing in this Paragraph 21 shall be
construed as imposing upon Custodian any obligation: (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral or Written Instructions when received,
unless, under the terms or another provision of this Agreement, the same is a
condition to Custodian's properly taking or omitting to take such action.
Nothing in this Paragraph 21(d) shall excuse Custodian when an action or
omission on the part of Custodian constitutes willful misfeasance or bad faith,
or negligence or reckless disregard by Custodian of its duties under this
Agreement.
22. Compliance with Governmental Rules and Regulations. Custodian
undertakes to comply with the laws, rules and regulations of governmental
authorities having jurisdiction over Custodian and its express duties hereunder.
23. Compensation. As compensation for the services rendered by
Custodian during the term of this Agreement, the Trust shall pay to Custodian,
in addition to reimbursement of its out-of-pocket expenses, such compensation as
may be agreed upon from time to time in writing by the Trust and Custodian as
set forth in Schedule III.
24. Indemnification. The Trust agrees to indemnify Custodian against,
and hold harmless from all taxes, charges, expenses (including reasonable fees
and expenses of counsel), assessments, claims, losses, demands and liabilities
whatsoever (including, without limitation, liabilities arising under the 1933
Act, the 1934 Act and the 1940 Act, and any state and foreign securities laws,
all as currently in effect or as may be amended from time to time) and expenses,
including without limitation, reasonable attorney's fees and disbursements,
howsoever arising or incurred because of or in connection with this Agreement,
except for such liability, claim, loss, demand, charge, expense, tax or
assessment arising out of Custodian's, or such nominees', willful misconduct or
negligence or reckless disregard of its duties under this Agreement. For the
purposes of this Agreement, including, without limitation, for purposes of
Paragraphs 24 and 28, neither Custodian's acceptance of Instructions in
accordance with Paragraph 26A nor Custodian's use of Foreign Sub-Custodians
pursuant to agreements that do not permit actual examination by independent
public accountants, nor the denial of examination by any Foreign Sub-Custodian,
as defined in Paragraph 27, shall, in and of itself, constitute, or be deemed to
constitute, a breach by Custodian of this Agreement or negligence, willful
misconduct, or reckless disregard of its duties by Custodian, provided the
relevant agreement between Custodian and a Foreign Sub-Custodian satisfies the
requirements of Rule 17f-5.
25. Overdrafts or Indebtedness.
(a) Custodian shall advance funds under this Agreement with
respect to any Portfolio which results in an overdraft because the moneys held
by Custodian in the separate
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account for such Portfolio shall be insufficient to pay the total amount payable
upon a purchase of securities by such Portfolio, as set forth in an Officer's
Certificate or Oral or Written Instructions, or which results in an overdraft in
the separate account of such Portfolio for some other reason, or if the Trust is
for any other reason indebted to Custodian, including any indebtedness to The
Bank of New York under the Trust's Cash Management and Related Services
Agreement, (except a borrowing for investment or for temporary or emergency
purposes using securities as collateral pursuant to a separate agreement and
subject to the provisions of Paragraph 25(b) hereof), such overdraft or
indebtedness shall be deemed to be a loan made by Custodian to the Trust for
such Portfolio payable on demand and shall bear interest from the date incurred
at a rate per annum (based on a 360-day year for the actual number of days
involved) equal to the overdraft rate specified in Schedule III to this
Agreement. In addition, the Trust hereby agrees that Custodian shall have a
continuing lien, security entitlement and security interest in and to any
property at any time held by it for the benefit of such Portfolio or in which
the Portfolio may have an interest which is then in Custodian's possession or
control or in possession or control of any third party acting on Custodian's
behalf. The Trust authorizes Custodian, in its sole discretion, at any time to
charge any such overdraft or indebtedness together with interest due thereon
against any balance of account standing to such Portfolio's credit on
Custodian's books. In addition, the Trust hereby covenants that on each Business
Day on which either it intends to enter a Reverse Repurchase Agreement and/or
otherwise borrow from a third party, or which next succeeds a Business Day on
which at the close of business the Trust had outstanding a Reverse Repurchase
Agreement or such a borrowing, it shall prior to 1:00 p.m., New York City time,
advise Custodian, in writing, of each such borrowing, shall specify the
Portfolio to which the same relates, and shall not incur any indebtedness not so
specified other than from Custodian.
(b) The Trust will cause to be delivered to Custodian by any
bank (including, if the borrowing is pursuant to a separate agreement,
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using securities held by Custodian hereunder as collateral
for such borrowings, a notice or undertaking in the form currently employed by
such bank setting forth the amount which such bank will loan to the Trust
against delivery of a stated amount of collateral. The Trust shall promptly
deliver to Custodian Written Instruction specifying with respect to each such
borrowing: (a) the Portfolio to which such borrowing relates; (b) the name of
the bank; (c) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Portfolio, or other loan agreement; (d) the time and date, if known, on which
the loan is to be entered into; (e) the date on which the loan becomes due and
payable; (f) the total amount payable to the Portfolio on the borrowing date;
(g) the market value of securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular securities and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the 1940 Act and the
Portfolio's prospectus. Custodian shall deliver on the borrowing date specified
in Written Instructions the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total amount of the
loan payable, provided that the same conforms to the total amount payable as set
forth in such Written Instructions. Custodian may, at the option of the lending
bank, keep such collateral in its possession, but such collateral shall be
subject to all rights therein given the lending bank by
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virtue of any promissory note or loan agreement. Custodian shall deliver such
securities as additional collateral as may be specified in Written Instructions
to collateralize further any transaction described in this Paragraph 25(b). The
Trust shall cause all securities released from collateral status to be returned
directly to Custodian, and Custodian shall receive from time to time such return
of collateral as may be tendered to it. In the event that the Trust fails to
specify in Written Instructions the Portfolio, the name of the issuer, the title
and number of shares or the principal amount of any particular securities to be
delivered as collateral by Custodian, Custodian shall not be under any
obligation to deliver any securities.
26A. Instructions.
(a) It is understood and agreed that Custodian may, from time
to time, provide software to the Trust for purposes of enabling a Portfolio to
transmit Instructions to Custodian (the "Software"). Such Software has been
designed to include password protection or other features to restrict the use of
the Software to Authorized Persons; provided, however, that the Custodian makes
no warranty or representations of any kind with respect to such protections or
features, express or implied, including, but not limited to, any implied
warranties of merchantability or fitness for a particular purpose. The Trust and
the Custodian shall use commercially reasonable efforts to develop other
mechanisms (i) to enable the Trust to restrict the use of the Software to
Authorized Persons, (ii) to identify transmissions from a terminal other than an
authorized terminal, and (iii) for the prompt and accurate transmission of
Instructions by Authorized Persons to Custodian. It is further understood and
agreed that Custodian may provide specialized hardware or other equipment to
enable the Trust and the Portfolios to utilize the Software. With respect to any
such Software, Custodian grants to the Trust and its service providers a
personal, nontransferable and nonexclusive license to use the Software solely
for the purpose of transmitting Instructions to, and receiving communications
from, Custodian in connection with its account(s). The Trust and its service
providers agree not to sell, reproduce, lease or otherwise provide, directly or
indirectly, the Software or any portion thereof to any third party without the
prior written consent of Custodian. At no time shall the Trust be obligated to
use the Software to transmit Instructions to Custodian.
(b) The Trust shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and transmit Instructions to
Custodian; provided, however, that the parties acknowledge and agree that if any
specialized equipment is necessary to enable the Trust to utilize the Software,
Custodian shall, at its own expense, provide and maintain such equipment.
(c) The Trust acknowledges that the Software, all databases
made available to the Trust by utilizing the Software (other than databases
relating solely to the assets of the Portfolios and transactions with respect
thereto), and any proprietary data, processes, information and documentation
(other than those which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of Custodian. The Trust shall keep
the Information confidential by using the same care and discretion that the
Trust uses with respect to its own confidential property and trade secrets and
shall neither make nor permit any disclosure without the prior written consent
of Custodian. Upon termination of this Agreement or the Software license
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granted hereunder for any reason, the Trust shall return to Custodian all copies
of the Information which are in its possession or under its control or which the
Trust distributed to third parties.
(d) Custodian reserves the right to modify the Software from
time to time upon reasonable prior notice and the Trust shall, if it desires in
its sole discretion to continue to use the Software, install new releases of the
Software as Custodian may direct. The Trust agrees not to modify or attempt to
modify the Software without Custodian's prior written consent. The Trust
acknowledges that any modifications to the Software, whether by the Trust or
Custodian and whether with or without Custodian's consent, shall become the
property of Custodian.
(e) Where the method for transmitting Instructions by the
Trust involves an automatic systems acknowledgment to the Trust by Custodian of
its receipt of such Instructions, including any transmission of Instructions
using the Software, then (i) if an acknowledgment is not actually received by
the Trust, Custodian shall not be deemed to have received any such Instructions,
and (ii) if an acknowledgment is actually received by the Trust, the Custodian
shall be deemed to have received such Instructions and shall be responsible for
any error, omission, interruption or delay in connection with the transmission
of such Instructions; provided, however, that the Trust shall promptly review
all acknowledgments actually received and notify the Custodian in the event of
any apparent discrepancy.
(f) (i) The Trust agrees that where it delivers to Custodian
Instructions hereunder using the Software, it shall be the Trust's sole
responsibility to ensure that only persons duly authorized by the Trust and the
correct number of such persons transmit such Instructions to Custodian and the
Trust will cause all such persons to treat applicable use and authorization
codes, passwords and authentication keys with extreme care, and authorizes
Custodian to act in accordance with and rely upon Instructions received by it
pursuant hereto using the Software. (ii) The Trust hereby represents,
acknowledges and agrees that it is fully informed of the protections and risks
associated with the various methods of transmitting Instructions to Custodian
and that there may be more secure methods of transmitting Instructions to
Custodian than the method(s) selected by the Trust. (iii) With respect to all
Oral Instructions and all Written Instructions other than Instructions delivered
to Custodian using the Software provided by Custodian, Custodian shall exercise
all commercially reasonable efforts to form a reasonable belief that each such
instruction has been given by an Authorized Person and, where required, signed
by an appropriate number of Authorized Person(s).
(g) The Trust shall notify Custodian of any errors, omissions
or interruptions in, or delay or unavailability of, its ability to send
Instructions using the Software provided by Custodian as promptly as
practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. Custodian shall, as promptly as practicable, and in any event within 24
hours after the earliest of (i) discovery thereof, (ii) the business day on
which discovery should have occurred through the exercise of reasonable care and
(iii) in the case of any error, the date of actual receipt of the earliest
notice which reflects such error, it being agreed that discovery and receipt of
notice may only occur on a business day, advise the Trust whenever Custodian
learns or reasonably should have learned, of any errors, omissions or
interruption in,
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or delay or unavailability of, the Trust's ability to send Instructions using
the Software provided by Custodian.
26B. FX Transactions
(a) Whenever a Portfolio shall enter into an FX Transaction,
the Portfolio shall promptly deliver to Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (i) the Series to
which such FX Transaction is specifically allocated; (ii) the type and amount of
Currency to be purchased by the Portfolio; (iii) the type and amount of Currency
to be sold by the Portfolio; (iv) the date on which the Currency to be purchased
is to be delivered; (v) the date on which the Currency to be sold is to be
delivered; and (vi) the name of the person from whom or through whom such
Currencies are to be purchased and sold. Unless otherwise instructed by a
Certificate or Oral Instructions, Custodian shall deliver, or shall instruct a
Foreign Sub-Custodian to deliver, the Currency to be sold on the date on which
such delivery is to be made, as set forth in the Certificate, and shall receive,
or instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on
the date as set forth in the Certificate.
(b) Where the Currency to be sold is to be delivered on the
same day as the Currency to be purchased, as specified in the Certificate or
Oral Instructions, Custodian or a Foreign Sub-Custodian may arrange for such
deliveries and receipts to be made in accordance with the customs prevailing
from time to time among brokers or dealers in Currencies, and such receipt and
delivery may not be completed simultaneously. The Portfolio assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Portfolio has been received in full.
(c) Any foreign exchange transaction effected by Custodian in
connection with this Agreement may be entered with Custodian, any office, branch
or subsidiary of The Bank of New York, or any Foreign Sub-Custodian (as defined
below) acting as principal or otherwise through customary banking channels. The
Portfolio may issue a standing Certificate with respect to foreign exchange
transactions but Custodian may establish rules or limitations concerning any
foreign exchange facility made available to the Portfolio. The Portfolio shall
bear all risks of investing in securities or holding Currency. Without limiting
the foregoing, the Portfolio shall bear the risks that rules or procedures
imposed by a Foreign Sub-Custodian or foreign depositories, exchange controls,
asset freezes or other laws, rules, regulations or orders shall prohibit or
impose burdens or costs on the transfer to, by or for the account of the
Portfolio of securities or any cash held outside the Portfolio's jurisdiction or
denominated in Currency other than its home jurisdiction or the conversion of
cash from one Currency into another Currency. Custodian shall not be obligated
to substitute another Currency for a Currency (including a Currency that is a
component of a Composite Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation, rule or procedure.
Neither Custodian nor any Foreign Sub-Custodian shall be liable to the Portfolio
for any loss resulting from any of the foregoing events.
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27. Duties of Custodian with Respect to Property of any Portfolio Held
Outside of the United States.
(a) Custodian is authorized and instructed to employ, as
sub-custodian for each Portfolio's foreign securities and other assets, the
foreign banking institutions and foreign securities depositories and clearing
agencies selected from time to time by Custodian as the Foreign Custody Manager
appointed by the Trust's Board of Trustees ("Foreign Sub-Custodians") to carry
out their respective responsibilities in accordance with the terms of the
sub-custodian agreement between each such Foreign Sub-Custodian and Custodian
(each such agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an
Officer's Certificate, the Trust may designate any additional foreign
sub-custodian with which Custodian has an agreement for such entity to act as
Custodian's agent, as its sub-custodian and any such additional foreign
sub-custodian shall be deemed a Foreign Sub-Custodian hereunder. Upon receipt of
an Officer's Certificate, Custodian shall cease using any one or more Foreign
Sub-Custodians for the Portfolio's assets.
(b) Each Foreign Sub-Custodian Agreement shall be
substantially in the form delivered to the Trust herewith and will not be
amended in a way that materially or adversely affects the Trust without the
Trust's prior written consent.
(c) Custodian shall identify on its books as belonging to each
Portfolio the Foreign Securities of such Portfolio held by each Foreign
Sub-Custodian. At the election of the Trust, it shall be entitled to be
subrogated to any claims by the Trust or any Portfolio against a Foreign
Sub-Custodian as a consequence of any loss, damage, cost, expense, liability or
claim sustained or incurred by the Trust or any Portfolio if and to the extent
that the Trust or such Portfolio has been made whole by Custodian for any such
loss, damage, cost, expense, liability or claim.
(d) Upon request of the Trust, Custodian will, consistent with
the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable
efforts to arrange for the independent accountants of the Trust to be afforded
access to the books and records of any Foreign Sub-Custodian insofar as such
books and records relate to the performance of such Foreign Sub-Custodian under
its agreement with Custodian on behalf of the Trust.
(e) Custodian will supply to the Trust from time to time, as
mutually agreed upon, statements in respect of the securities and other assets
of each Portfolio held by Foreign Sub-Custodians, including but not limited to,
an identification of entities having possession of each Portfolio's Foreign
Securities and other assets, and advices or notifications of any transfers of
Foreign Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for Custodian on behalf of the Portfolio.
(f) Custodian agrees that it will use reasonable care in
monitoring compliance by each Foreign Sub-Custodian with the terms of the
relevant Foreign Sub-Custodian Agreement and that if it learns of any breach of
such Foreign Sub-Custodian Agreement believed by Custodian to have a material
adverse effect on the Trust or any Portfolio it will promptly notify the Trust
in writing of such breach. Custodian also agrees to use reasonable and diligent
efforts to enforce its rights under the relevant Foreign Sub-Custodian
Agreement.
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(g) Custodian shall transmit promptly to the Trust all
notices, reports or other written information received pertaining to the
Portfolios' Foreign Securities, including without limitation, notices of
corporate action, proxies and proxy solicitation materials.
(h) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of the
Trust or any Portfolio and delivery of securities maintained for the account of
the Trust or any Portfolio may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
(i) With respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian, the sole
responsibility and liability of Custodian shall be to take all appropriate and
reasonable action at the Trust's expense to recover such loss or damage from the
Foreign Sub-Custodian. It is expressly understood and agreed that Custodian's
sole responsibility and liability shall be limited to amounts so recovered from
the Foreign Sub-Custodian.
28. Concerning Custodian.
(a) (i) Custodian shall exercise care and diligence and act in
good faith and use all commercially reasonable efforts in the performance of its
duties hereunder. Custodian shall be responsible to the Trust for its own
failure or the failure of any sub-custodian that it shall appoint (other than a
foreign sub-custodian referred to in Paragraph 27 or a sub-custodian appointed
by Custodian at the specific direction of the Trust) or that of its employees or
agents, to perform its duties, obligations or responsibilities in accordance
with this Agreement, but only to the extent that such failure results from acts
or omissions that constitute willful misfeasance, bad faith or negligence on the
part of Custodian, or on the part of its employees or agents, or reckless
disregard of such duties, obligations and responsibilities.
(ii) Without limiting the generality of the foregoing or
any other provision of this Agreement, in no event shall Custodian be liable to
the Portfolio or any third party nor, except as otherwise provided in this
subparagraph for special, indirect or consequential damages or lost profits or
loss of business, arising under or in connection with this Agreement, even if
previously informed of the possibility of such damages and regardless of the
form of action. Custodian may, with respect to questions of law arising under
any FCM Agreement, apply for and obtain the advice and opinion of counsel to the
Trust at the expense of the Trust, or of its own counsel at its own expense, and
shall be fully protected with respect to anything done or omitted by it in good
faith in conformity with such advice or opinion. Custodian shall be liable to
the Trust for any loss or damage resulting from the use of the Book-Entry System
or any Securities Depository arising by reason of any negligence or willful
misconduct on the part of Custodian or any of its employees or agents.
(iii) Custodian's liability pursuant to the last sentence
of subparagraph (a)(i) shall include, but not be limited to, reimbursing the
Trust for court-ordered
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damage awards, fines, penalties, and judicially-approved
settlements (and attorney's fees and disbursements relating thereto) arising out
of or in connection with the conduct giving rise to such liability.
(iv) If the Trust receives notice of the commencement of
any action, suit, or proceeding (an "Action"), or notice that any Action may be
commenced, for which Custodian may be liable to the Trust pursuant to this
Paragraph 28, the Trust shall give notice to Custodian of the commencement of
the Action or of the possibility that an Action will be commenced. Any omission
to notify Custodian will not relieve Custodian from any liability which it may
have under this Paragraph, except to the extent the failure to notify Custodian
prejudices the rights of Custodian. Custodian will be entitled at its sole
expense and liability, to exercise full control of the defense, compromise or
settlement of any such Action, provided that Custodian: (1) notifies the Trust
in writing of Custodian's intention to assume such defense; and (2) retains
legal counsel reasonably satisfactory to the Trust to conduct the defense of
such Action. If Custodian advises the Trust that it does not wish to exercise
full control of any defense, compromise or settlement of any Action, Custodian
shall be responsible for the fees and expenses of counsel selected by the Trust,
in addition to any other amounts for which Custodian may be liable pursuant to
this Paragraph 28. The other person will cooperate with the person assuming the
defense, compromise or settlement of any Action in accordance with this
Paragraph in any manner that such person reasonably may request. If Custodian so
assumes the defense of any such Action, the Trust will have the right to employ
a separate counsel and to participate in (but not control) the defense,
compromise or settlement of the Action, but the fees and expenses of such
counsel will be at the expense of the Trust unless: (a) Custodian has agreed to
pay such fees and expenses, (b) any relief other than the payment of money
damages is sought against the Trust, or (c) the Trust has been advised by its
counsel that there may be one or more defenses available to it which are
different from or additional to those available to Custodian and that a conflict
of interest therefore exists, and in any such case that portion of the fees and
expenses of such separate counsel that are reasonably related to matters for
which Custodian is liable pursuant to this Paragraph will be paid by Custodian.
The Trust will not settle or compromise any such Action for which Custodian is
liable pursuant to this Paragraph without the prior written consent of
Custodian, unless Custodian has failed, after reasonable notice, to undertake
control of such Action in the manner provided in this Paragraph. Custodian will
not settle or compromise any such Action in which any relief other than the
payment of money damages is sought against the Trust without the consent of the
Trust, such consent not to be unreasonably withheld. In the event that Custodian
intends to settle or compromise any Action in which solely money damages are
sought, Custodian shall give the Trust fifteen (15) business days prior written
notice.
(b) Without limiting the generality of the foregoing,
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(i) the validity of the issue of any securities
purchased, sold, or written by or for the Trust or any Portfolio, the legality
of the purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(ii) the legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
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<PAGE>
(iii) the legality of the declaration or payment of any
dividend by the Trust;
(iv) the legality of any borrowing by the Trust using
securities as collateral;
(v) the legality of any loan of portfolio securities, or
under any duty or obligation to see to it that any cash collateral delivered to
it by a broker, dealer, or financial institution or held by it at any time as a
result of such loan of portfolio securities is adequate collateral for or
against any loss Custodian, the Trust or any Portfolio might sustain as a result
of such loan. Custodian specifically, but not by way of limitation, shall not be
under any duty or obligation periodically to check or notify the Trust or any
Portfolio that the amount of such cash collateral held by Custodian for the
Trust is sufficient collateral for the Trust, but such duty or obligation shall
be the sole responsibility of the Trust. In addition, Custodian shall be under
no duty or obligation to see that any broker, dealer or financial institution to
which portfolio securities are lent makes payment to it of any dividends or
interest which are payable to or for the account of the Trust during the period
of such loan or at the termination of such loan, provided, however, that
Custodian shall promptly notify the Trust in the event that such dividends or
interest are not paid and received when due; or
(vi) the sufficiency or value of any amounts of money
and/or securities held in any segregated account described in Paragraph 12(a)
hereof in connection with transactions by the Portfolios, or whether such
segregated account provides the compliance intended to be achieved. In addition,
Custodian shall not be under any duty or obligation to see that any broker,
dealer, FCM or Clearing Member makes payment to the Portfolio of any variation
margin payment or similar payment which the Portfolio may be entitled to receive
from such broker, dealer, FCM or Clearing Member, to see that any payment
received by Custodian from any broker, dealer, FCM or Clearing Member is the
amount the Trust is entitled to receive, or to notify the Trust or a Portfolio
of Custodian's receipt or non-receipt of any such payment.
(c) Custodian shall not be liable for, or considered to be
sub-custodian or custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by
Custodian on behalf of the Trust until Custodian actually receives and collects
such money directly or by the final crediting of the account representing the
Portfolio's interest at the Book-Entry System or a Securities Depository.
(d) Custodian shall not have any responsibility or be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to securities held in
a Securities Depository, unless Custodian shall have actually received timely
notice from such Securities Depository. In no event shall Custodian have any
responsibility or liability for the failure of any Securities Depository to
collect, or for the late collection or late crediting by a Securities Depository
of any amount payable upon securities deposited in a Securities Depository which
may mature or be redeemed, retired, called or otherwise become payable. Upon
receipt of Written Instructions from the Trust of an overdue amount on
securities held in a Securities Depository Custodian shall make a claim against
a Securities Depository on behalf of the Trust, except that Custodian shall not
be under any obligation to appear in, prosecute or defend any action suit or
proceeding in respect to any securi-
21
<PAGE>
ties held by a Securities Depository which in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
(e) Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Trust from a transfer
agent of the Trust nor to take any action to effect payment or distribution by
the transfer agent of the Trust of any amount paid by Custodian to the transfer
agent of the Trust in accordance with this Agreement.
(f) Custodian shall not be under any duty or obligation to
take action to effect collection of any amount, if the securities upon which
such amount is payable are in default, or if payment is refused after due demand
or presentation, unless and until: (i) it shall be directed to take such action
by Written Instructions, and (ii) it shall be assured to its reasonable
satisfaction of reimbursement of its costs and expenses in connection with any
such action.
(g) Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Paragraphs 7 and 27, hereof appoint one or more
banking institutions as Depository or Depositories, as a sub-custodian or as
sub-custodians, or as a co-custodian or as co-custodians, including, but not
limited to, banking institutions located in foreign countries, of securities and
moneys at any time owned by the Portfolios, upon such terms and conditions as
may be approved in an Officer's Certificate or contained in an agreement
executed by Custodian and the Trust and the appointed institution.
(h) Custodian shall not be under any duty or obligation: (i)
to ascertain whether any securities at any time delivered to, or held by it or
by any Foreign Sub-Custodian, for the account of the Trust and specifically
allocated to a Portfolio are such as properly may be held by the Trust or such
Portfolio under the provisions of its Prospectus, or (ii) to ascertain whether
any transactions by the Portfolio, whether or not involving Custodian, are such
transactions as may properly be engaged in by the Portfolio.
(i) Custodian shall charge its compensation and any expenses
with respect to the Portfolios of the Trust incurred by Custodian in the
performance of its duties under this Agreement only against the money of the
Portfolio or Portfolios of the Trust from which such compensation or expenses is
actually due and payable, and under no circumstances shall any compensation or
expenses due to Custodian be considered to be a joint, or joint and several,
obligation of the Portfolios of the Trust. To the extent that Custodian is
entitled to recover from the Trust any loss, damage, liability or expense
(including counsel fees) under this Agreement, Custodian shall charge the amount
due in respect of such loss, damage, liability or expense (including counsel
fees) only against the money held by it for the Portfolio or Portfolios of the
Trust that is/are identified by the Trust in an Officer's Certificate, unless
and until the Trust instructs Custodian by an Officer's Certificate to charge
against money held by it for the account of a Portfolio such Portfolio's pro
rata share (based on such Portfolio's net asset value at the time of the charge
in proportion to the aggregate net asset value of all Portfolios at that time)
of the amount of such loss, damage, liability or expense (including counsel
fees).
(j) Custodian shall be entitled to rely upon any Officer's
Certificate, Written Instructions, notice or other instrument in writing
received by Custodian and reasonably believed
22
<PAGE>
by Custodian, to be an Officer's Certificate or Written Instructions. Custodian
shall be entitled to rely upon any Oral Instructions actually received by
Custodian. The Trust agrees to forward to Custodian Written Instructions
confirming such Oral Instructions in such manner so that such Written
Instructions are received by Custodian, whether by hand delivery, telecopier or
other similar device, or otherwise, by the close of business of the same day
that such Oral Instructions are received by Custodian. The Trust agrees that the
fact that such confirming instructions are not received, or that contrary
instructions are received, by Custodian shall in no way affect the validity of
the transactions or enforceability of the transactions hereby authorized by the
Trust. The Trust agrees that Custodian shall not incur any liability to the
Trust in acting upon Oral Instructions given to Custodian hereunder concerning
such transactions provided such instructions reasonably appear to have been
received from an Authorized Person.
(k) Custodian shall be entitled to rely upon any instrument,
instruction or notice received by it and reasonably believed by it to be given
in accordance with the terms and conditions of any FCM Agreement. Without
limiting the generality of the foregoing, Custodian shall not be under any duty
to inquire into, and Custodian shall not be liable for, the accuracy of any
statements or representations contained in any such instrument or other notice
including, without limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or clearing member.
(l) Custodian shall provide the Trust with any report obtained
by Custodian on the system of internal accounting control of the Book-Entry
System, any Securities Depository utilized hereunder the Depository or the
Options Clearing Corporation, and with such reports on its own systems of
internal accounting control as the Trust may reasonably request from time to
time.
(m) Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Paragraph 27 hereof, Custodian
may deliver and receive securities, and receipts with respect to such
securities, and arrange for payments to be made and received by Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such securities. When Custodian is instructed to deliver securities
against payment, delivery of such securities and receipt of payment therefor may
not be completed simultaneously. The Portfolio assumes all responsibility and
liability for all credit risks involved in connection with Custodian's delivery
of securities pursuant to proper instructions of the Portfolio, which
responsibility and liability shall continue until final payment in full has been
received by Custodian.
(n) Custodian shall not have any duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against Custodian.
29. Termination. Any of the parties hereto may terminate this Agreement
by giving to the other parties a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. Upon the date set forth in such notice this Agreement
shall terminate, and Custodian shall on that date deliver directly to the Trust
or a successor custodian designated by the Trust all securities and moneys then
owned by the Trust and held by Custodian, after deducting all fees, expenses and
other amounts for the
23
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payment or reimbursement of which it shall then be entitled; provided, however,
that transaction fees and expenses payable by the Trust in connection with a
deconversion to a successor custodian shall be limited to Custodian's actual
direct cost.
30. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed: (a) if to Custodian, at Custodian's address, 90
Washington Street, 22nd Floor, New York, New York 10286, Attention: Frank Ajosa;
(b) if to the Trust, at the address of the Trust, 111 Center Street, Little
Rock, Arkansas 72201, Attention: Richard H. Blank, Jr., Secretary; or (c) if to
none of the foregoing, at such other address as shall have been notified to the
sender of any such Notice or other communication. Notice shall be deemed to have
been given when actually received by the other party. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a Notice hereunder shall be paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as it deems necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Miscellaneous.
(a) The Trust agrees that Custodian may be a counterparty in
any purchase or sale of foreign currency by or for the Trust on a spot or
forward basis, and on any option to buy or sell foreign currency.
(b) This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
34. Release. The names "Nations Master Investment Trust" and "Trustees
of Nations Master Investment 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 Certificate of Trust dated January ___,
1999, which is hereby referred to and a copy of which is on file at the office
of the Secretary of the State of Delaware and at the principal office of the
Trust. The obligations of "Nations Master Investment 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 (as defined in the Declaration of Trust),
24
<PAGE>
and all persons dealing with any class of Shares of the Trust Property, and all
persons dealing with any class of Shares of the Trust must look solely to the
Trust Property belonging to such class for the enforcement of any claims against
the Trust.
35. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
NATIONS MASTER INVESTMENT TRUST
By:
Richard H. Blank, Jr.
Secretary
THE BANK OF NEW YORK
By:
Stephen E. Grunston
Vice President
25
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SCHEDULE I
The Custody Agreement between Nations Master Investment Trust, and
Sub-Custodian applies to the following Portfolios of the Trust:
Nations Intermediate Bond Master Portfolio
Nations Blue Chip Master Portfolio
Nations International Equity Master Portfolio
Nations Marsico Focused Equities Master Portfolio
Nations Marsico Growth & Income Master Portfolio
26
<PAGE>
SCHEDULE II
I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do hereby designate
the following publications:
The Bond Buyer
Depository Trust Company Services
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
Standard & Poor's Called Bond Record
Wall Street Journal
27
<PAGE>
SCHEDULE III
DOMESTIC CUSTODIAN FEE SCHEDULE
FOR
NATIONS MASTER INVESTMENT TRUST
SAFEKEEPING/INCOME COLLECTION/REPORTING DTC-ID AFFIRMATION
ALL SYSTEMS DEVELOPMENT AND USAGE CHARGES
3/4ths of one basis point per annum on the aggregate net assets of
all Nations' Non-Money Market Funds up to $10 billion.
1/2 of a basis point on the excess.
SECURITY TRANSACTION CHARGES/PAYDOWNS
$ 5 Paydowns
$ 7 DTC/FRB/PTC
$15 Physicals, options and futures
$40 Euro C/D's
OTHER CHARGES
$ 5 Bank official checks
$ 2 Money transfers in/out of the Fund's custodian account not
related to securities transactions.
EARNINGS CREDITS ON BALANCES/INTEREST ON OVERDRAFTS
Earnings credits are provided to each Fund on 80% of the daily balance in the
domestic custodian account computed at the 90-day T-bill rate on the day of the
balance.
Overdrafts, excluding bank errors, will cause a reduction of earnings credits
daily, computed at 1% above the average Federal Funds rate on the day of the
overdraft.
Credits and debits will be accumulated daily and offset monthly against the
Bank's domestic custodian fees. To the extent a net debit is accumulated, each
Fund will be billed for the expense. To the extent a net earnings credit is
generated, such excess earnings credit can be carried forward to the next
succeeding month. However, no earnings credit will be carried forward after
year-end.
OUT-OF-POCKET EXPENSES
None.
BILLING CYCLE
The above fees are billed monthly.
28
<PAGE>
SCHEDULE IV
OVERDRAFT RATE
29
Exhibit 99.H1
FORM OF
ADOPTION AGREEMENT AND
AMENDMENT TO TRANSFER AGENCY
AND SERVICES AGREEMENT
(With Facilities Management Arrangement)
This Adoption Agreement and Amendment, dated as of May 21, 1999, is
made to the Transfer Agency and Services Agreement dated as of June 1, 1995, as
amended (the "Agreement"), by and among NATIONS FUND, INC., NATIONS FUND TRUST,
THE CAPITOL MUTUAL FUNDS d/b/a NATIONS INSTITUTIONAL RESERVES, NATIONS FUND
PORTFOLIOS, INC., NATIONS LIFEGOAL FUNDS, INC., NATIONS ANNUITY TRUST and each
other party which may become a party thereto pursuant to the terms of the
Agreement (individually, a "Fund," and collectively, the "Funds") and FIRST DATA
INVESTOR SERVICES GROUP, INC., formerly known as THE SHAREHOLDER SERVICES GROUP,
INC. (the "Transfer Agent").
RECITALS
WHEREAS, the Transfer Agent serves as transfer agent, dividend
disbursing agent and agent in connection with certain other services for the
Funds pursuant to the Agreement; and
WHEREAS, Section 17.2 of the Agreement provides that, subsequent to
the date of the Agreement, a registered investment company (a "New Fund") for
which NationsBank, N.A., or any of its affiliates acts as investment adviser may
become a party to the Agreement upon execution of a written adoption agreement
(an "Adoption Agreement") by such New Fund pursuant to which such New Fund
agrees to be bound by the terms of the Agreement; and
WHEREAS, the Board of Trustees of Nations Master Investment Trust
("Master Trust") has approved the selection of the Transfer Agent to serve as
the transfer and dividend disbursing agent for all classes of shares of the
portfolios of Master Trust; and
WHEREAS, Master Trust is advised by NationsBanc Advisors, Inc., an
affiliate of NationsBank, N.A.;
AGREEMENT
NOW THEREFORE, in consideration of the promises and mutual
covenants herein contained, the Funds and the Transfer Agent agree that the
Agreement shall be amended as follows:
1. The Funds hereby authorize the addition of Master Trust as a party to the
Agreement effective upon the execution of this Adoption Agreement and Amendment
to Transfer Agency and Services Agreement.
2. Master Trust agrees to be bound by the terms of the Agreement.
3. Master Trust is hereby deemed a Fund for all purposes of the Agreement and
shall have all the rights, obligations and duties of a Fund under the Agreement.
<PAGE>
4. Schedule G, attached hereto, is hereby attached to the Agreement as Schedule
G and is deemed a part of the Agreement.
5. The terms and provisions of this Adoption Agreement and Amendment shall be
deemed a part of the Agreement for all purposes. To the extent that any
provisions of this Adoption Agreement and Amendment modify or are otherwise
inconsistent with any provisions of the Agreement, the provisions of this
Adoption Agreement and Amendment shall control. In all other respects, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Adoption
Agreement and Amendment to be executed by their duly authorized officers, as of
the day and year first above written.
FIRST DATA INVESTOR SERVICES GROUP, INC., formerly, THE
SHAREHOLDER SERVICES GROUP, INC.
By: ____________________________________________
Name: James L. Fox
Title: Chief Operating Officer
NATIONS FUND, INC.
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Directors
NATIONS FUND TRUST
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Directors
THE CAPITOL MUTUAL FUNDS, d/b/a
NATIONS INSTITUTIONAL RESERVES
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Directors
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Directors
NATIONS LIFEGOAL FUNDS, INC.
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Directors
NATIONS ANNUITY TRUST
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Trustees
NATIONS MASTER INVESTMENT TRUST
By: ____________________________________________
Name: A. Max Walker
Title: President and Chairman
of the Board of Trustees
<PAGE>
SCHEDULE G
I) NATIONS FUND TRUST
o Nations Government Money Market Fund
o Nations Tax Exempt Fund
o Nations Value Fund
o Nations Capital Growth Fund
o Nations Emerging Growth Fund
o Nations Disciplined Equity Fund
o Nations Equity Index Fund
o Nations Managed Index Fund
o Nations Managed SmallCap Index Fund
o Nations Managed Value Index Fund
o Nations Managed SmallCap Value Index Fund
o Nations Marsico Focused Equities Fund
o Nations Marsico Growth & Income Fund
o Nations Balanced Assets Fund
o Nations Short-Intermediate Government Fund
o Nations Short-Term Income Fund
o Nations Diversified Income Fund
o Nations Strategic Fixed Income Fund
o Nations Strategic Equity Fund
o Nations Municipal Income Fund
o Nations Short-Term Municipal Income Fund
o Nations Intermediate Municipal Bond Fund
o Nations Florida Intermediate Municipal Bond Fund
o Nations Florida Municipal Bond Fund
o Nations Georgia Intermediate Municipal Bond Fund
o Nations Georgia Municipal Bond Fund
o Nations Maryland Intermediate Municipal Bond Fund
o Nations Maryland Municipal Bond Fund
o Nations North Carolina Intermediate Municipal Bond Fund
o Nations North Carolina Municipal Bond Fund
o Nations South Carolina Intermediate Municipal Bond Fund
o Nations South Carolina Municipal Bond Fund
o Nations Tennessee Intermediate Municipal Bond Fund
o Nations Tennessee Municipal Bond Fund
o Nations Texas Intermediate Municipal Bond Fund
o Nations Texas Municipal Bond Fund
o Nations Virginia Intermediate Municipal Bond Fund
o Nations Virginia Municipal Bond Fund
o Nations Kansas Intermediate Municipal Bond Fund
II) NATIONS FUND, INC.
o Nations Prime Fund
o Nations Treasury Fund
o Nations Equity Income Fund
o Nations International Equity Fund
o Nations Government Securities Fund
o Nations International Growth Fund
o Nations U.S. Government Bond Fund
o Nations Small Company Growth Fund
o Nations International Value Fund
<PAGE>
III) NATIONS FUND PORTFOLIOS, INC.
o Nations Emerging Markets Fund
o Nations Pacific Growth Fund
o Nations Global Government Income Fund
IV) THE CAPITOL MUTUAL FUNDS D/B/A NATIONS INSTITUTIONAL RESERVES
o Nations Cash Reserves
o Nations Treasury Reserves
o Nations Government Reserves
o Nations Municipal Reserves
o Nations Money Market Reserves
V) NATIONS LIFEGOAL FUNDS, INC.
o LifeGoal Growth Portfolio
o LifeGoal Balanced Growth Portfolio
o LifeGoal Income and Growth Portfolio
VI) NATIONS ANNUITY TRUST
o Nations Value Portfolio
o Nations International Growth Portfolio
o Nations Disciplined Equity Portfolio
o Nations Marsico Focused Equities Portfolio
o Nations Marsico Growth & Income Portfolio
o Nations Managed Index Portfolio
o Nations Managed SmallCap Index Portfolio
o Nations Balanced Assets Portfolio
VII) NATIONS MASTER INVESTMENT TRUST
o Nations Blue Chip Master Portfolio
o Nations Intermediate Bond Master Portfolio
o Nations International Equity Master Portfolio
o Nations Marsico Focused Equities Master Portfolio
o Nations Marsico Growth & Income Master Portfolio
Effective Date: May 21, 1999
Exhibit 99.H2
FORM OF
CO-ADMINISTRATION AGREEMENT
This CO-ADMINISTRATION AGREEMENT (the "Agreement") is made as of May
21, 1999 by and among STEPHENS INC. ("Stephens"), NATIONSBANC ADVISORS, INC.
("NBAI") and NATIONS MASTER INVESTMENT TRUST (the "Master Trust").
WHEREAS, the Master Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Master Trust desires to retain Stephens and NBAI to render
certain administrative services for the investment portfolios of the Master
Trust listed on Schedule I (individually, a "Fund" and collectively, the
"Funds"), and Stephens and NBAI are willing to render such services.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. Appointment.
(a) The Master Trust hereby appoints Stephens to act as
Co-Administrator of the Funds and Stephens hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 3, for the
compensation and on the terms herein provided. Absent written notification to
the contrary by the Master Trust, NBAI or Stephens, each new investment
portfolio established in the future by the Master Trust shall automatically
become a "Fund" for all purposes hereunder as if listed on Schedule I.
(b) The Master Trust also hereby appoints NBAI to act as
Co-Administrator of the Funds, and NBAI hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 4, for the
compensation and on the terms herein provided. Absent written notification to
the contrary by either the Master Trust or NBAI, each new investment portfolio
established in the future by the Master Trust shall automatically become a
"Fund" for all purposes hereunder as if listed on Schedule I.
2. Delivery of Documents. The Master Trust has furnished Stephens and NBAI with
copies properly certified or authenticated of each of the following:
(a) The Master Trust's most recent Post-Effective Amendment to its Registration
Statement on Form N-1A (the "Registration Statement") under the 1940 Act (File
No. _______ ), as filed with the Securities and Exchange Commission (the "SEC")
relating to the Funds' shares (the "Shares");
(b) The Funds' most recent Prospectus(es); and
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(c) The Funds' most recent Statement(s) of Additional Information.
The Master Trust will furnish Stephens and NBAI from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing. Furthermore, the Master Trust will provide Stephens and NBAI
with any other documents that Stephens and NBAI may reasonably request and will
notify Stephens and NBAI as soon as possible of any matter materially affecting
either Stephens' or NBAI'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 Master Trust, Stephens, as Co-Administrator, will
assist in supervising various aspects of the Master Trust's administrative
operations and undertakes to perform the following specific services from and
after the effective date of this Agreement:
(a) Maintaining office facilities for the Master Trust (which may be in the
offices of Stephens or a corporate affiliate);
(b) Furnishing clerical services, internal executive and administrative services
and stationery and office supplies in connection with the foregoing;
(c) Assist in furnishing statistical and research data and data processing
services in connection with the foregoing;
(d) Furnishing corporate secretarial services, including assisting in the
coordination of the preparation and distribution of materials for Board of
Trustees meetings;
(e) Providing the services of certain persons who may be appointed as officers
of the Master Trust by the Master Trust's Board of Trustees;
(f) Assist in coordinating the provision of legal advice and counsel to the
Master Trust with respect to regulatory matters, including monitoring regulatory
and legislative developments which may affect the Master Trust and assisting in
the strategic response to such developments, counseling and assisting the Master
Trust in routine regulatory examinations or investigations of the Master Trust,
and working closely with outside counsel to the Master Trust in connection with
any litigation in which the Master Trust is involved;
(g) Assist in coordinating the preparation of reports to the Master 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;
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(h) Coordinating with the Master Trust regarding the jurisdictions in which the
Shares shall be registered or qualified for sale and, in connection therewith,
being responsible for the registration or qualification and the maintenance of
such registration or qualification of Shares for sale under the securities laws
of any state. Payment of share registration fees and any fees for qualifying or
continuing the qualification of the Master Trust or any Fund as a dealer or
broker shall be made or reimbursed by the Master Trust or that Fund,
respectively;
(i) Assisting in the preparation and filing on a timely basis of various
reports, registration statements and post-effective amendments thereto, and
other documents required by federal, state and other applicable laws and
regulations, other than those filed or required to be filed by NBAI or the
Funds' Sub-Advisers, Transfer Agent, Sub-Transfer Agent or Custodian;
(j) Performing certain compliance procedures for the Master Trust which will
include, among other matters, monitoring compliance with personal trading
guidelines by the Master Trust's Board of Trustees; and
(k) Generally assisting in all aspects of the Master Trust's operations.
In performing all services under this Agreement, Stephens shall (i) act
in conformity with: the Master Trust's Declaration of Trust, the 1940 Act and
the rules thereunder, and other applicable laws and regulations, as the same may
be amended from time to time, and the Master Trust's Registration Statement, as
such Registration Statement may be amended from time to time; (ii) consult and
coordinate with the Master Trust, as necessary and appropriate; and (iii) advise
and report to the Master Trust, as necessary or appropriate, with respect to any
compliance matters that come to its attention.
Stephens represents and warrants to the Master Trust that it will use
reasonable efforts to perform its duties and obligations under this Agreement
without: (a) any failure of its computer systems, or those used by it in the
performance of its duties hereunder, to properly record, store, process,
calculate or present calendar dates falling on and after, and time spans
including, January 1, 2000 as a result of the occurrence of, or use of data
containing, such date; (b) any failure of its computer systems, or those used by
it in the performance of its duties hereunder, to calculate any information
dependent on or relating to dates on or after January 1, 2000; or (c) any loss
of functionality or performance with respect to the maintenance of records or
processing of data containing dates falling on or after January 1, 2000 ((a),
(b), and (c) above shall be referred to as "Y2K Failures"). Notwithstanding the
above, Stephens shall not be liable for any Y2K Failures caused by Y2K Failures
in a third party system with which Stephens interfaces or from which Stephens
receives data in connection with the performance of its duties hereunder.
In performing its services under this Agreement, Stephens shall
cooperate and coordinate with NBAI as necessary and appropriate and shall
provide such information as is reasonably necessary or appropriate for NBAI to
perform its responsibilities to the Master Trust.
4. Duties as Co-Administrator. Subject to the supervision and direction of the
Board of Trustees of the Master Trust, NBAI, as Co-Administrator, will assist in
supervising various aspects of the Master Trust's administrative operations and
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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 Master Trust as may be required by Section 31(a) of the 1940
Act and the rules thereunder). NBAI further agrees that all such records which
it maintains for the Master Trust are the property of the Master Trust and
further agrees to surrender promptly to the Master Trust any of such records
upon the Master Trust's request;
(b) valuing each Fund's assets and calculating the net asset value and the net
income of the shares of each Fund in accordance with the Master Trust's current
Prospectus(es), applicable pricing procedures and resolutions of the Master
Trust's Board of Trustees, provided, that in performing such services, NBAI
shall obtain security market quotes from independent pricing services, or if
such quotes are unavailable, obtain such prices from the Funds' Sub-Advisers;
(c) accumulating information for reports to the Master 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;
(d) preparing and filing on a timely basis the Master Trust's tax returns and
other tax filings;
(e) monitoring the development and implementation of certain compliance
procedures for the Master Trust including, but not limited to, monitoring (i)
each Fund's status as a regulated investment company under Sub-Chapter M of the
Internal Revenue Code of 1986, as amended, including performing, on a monthly
basis and based upon information provided by the Fund's Sub-Advisers, the 90%
gross income and asset diversification tests derived from such Sub-Chapter; and
(ii) compliance by each Fund with its investment objective, policies and
restrictions, and applicable laws and regulations;
(f) preparing and furnishing to the Master Trust monthly broker security
transaction summaries and monthly security transaction listings and (at the
Master Trust's request) performance information (including yield and total
return information) calculated in accordance with applicable U.S. securities
laws and reporting to external databases such information as may reasonably be
requested;
(g) assisting the Master Trust and its agents in their accumulation and
preparation of materials for the Board of Trustees' meetings and for regulatory
examinations and inspections of the Master Trust, to the extent such materials
relate to the services being performed for the Master Trust by NBAI; and
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(h) coordinate the provisions of services to the Master Trust by other service
providers to the Master Trust, including the transfer agent, sub-transfer agent
and custodian.
In performing all services under this Agreement, NBAI shall (i) act in
conformity with the Master Trust's Declaration of Trust; the 1940 Act and the
rules thereunder, and other applicable laws and regulations, as the same may be
amended from time to time; and the Master Trust's Registration Statement, as
such Registration Statement may be amended from time to time, (ii) consult and
coordinate with the Master Trust, as necessary and appropriate, and (iii) advise
and report to the Master Trust, as necessary or appropriate, with respect to any
compliance matters that come to its attention.
NBAI represents and warrants to the Master Trust that it will use
reasonable efforts to perform its duties and obligations under this Agreement
without: (a) any failure of its computer systems to properly record, store,
process, calculate or present calendar dates falling on and after, and time
spans including, January 1, 2000 as a result of the occurrence of, or use of
data containing, such date; (b) any failure of its computer systems to calculate
any information dependent on or relating to dates on or after January 1, 2000;
or (c) any loss of functionality or performance with respect to the maintenance
of records or processing of data containing dates falling on or after January 1,
2000 ((a), (b), and (c) above shall be referred to as "Y2K Failures").
Notwithstanding the above, NBAI shall not be liable for any Y2K Failures caused
by Y2K Failures in a third party system with which NBAI interfaces or from which
NBAI receives data in connection with the performance of its duties hereunder
including, without limitation, the system of any sub-administrator engaged
pursuant to Paragraph 4.
In connection with its duties under this Paragraph 4, it is understood
and agreed that NBAI may, at its own expense, enter into sub-administration
agreements with other service providers and the Fund(s), provided that each such
service provider agrees with NBAI and the Fund(s) to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder. In
addition, upon notice to the Board of Trustees of the Master Trust, the parties
agree that NBAI may from time to time assume some or all of Stephens' duties set
forth in Paragraph 3 above.
In performing its responsibilities under this Agreement, NBAI shall
cooperate and coordinate with Stephens as necessary and appropriate and shall
provide such information within its possession or control as is reasonably
necessary or appropriate to Stephens to enable it to perform its
responsibilities to the Master Trust.
5. Compensation.
(a) Stephens shall bear all expenses in connection with the performance of its
services under this Agreement, except those enumerated in Paragraph 5(a)(2)
below.
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(1) Stephens will from time to time employ or associate with such person or
persons as Stephens may believe to be particularly suited to assist it in
performing services under this Agreement. Such person or persons may be officers
and employees of both Stephens and the Master Trust. The compensation of such
person or persons shall be paid by Stephens and no obligation shall be incurred
on behalf of the Master Trust or NBAI in such respect.
(2) Stephens shall not be required to pay any of the following expenses incurred
by the Master 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 Master Trust who are
not affiliated with Stephens; outside auditing expenses; outside legal expenses;
fees of any other service provider to the Master Trust; or other expenses not
specified in this Section 5(a) which may be properly payable by the Master Trust
and which are approved by the Master Trust's President or Treasurer.
(3) The Master Trust will compensate Stephens for its services rendered pursuant
to this Agreement in accordance with Schedule A. In addition, the Master Trust
shall reimburse Stephens for certain reasonable out-of-pocket distributions made
in connection with fulfilling its obligations under the Agreement. The items
eligible for reimbursement are set forth on Schedule A.
(b) NBAI shall bear all expenses in connection with the
performance of its services under this Agreement, except those enumerated in
5(b)(2) below.
(1) NBAI will from time to time employ or associate with such person or persons
as NBAI may believe to be particularly suited to assist it in performing
services under this Agreement. Such person or persons may be officers and
employees of both NBAI and the Master Trust. The compensation of such person or
persons shall be paid by NBAI and no obligation shall be incurred on behalf of
the Master Trust or Stephens in such respect.
(2) NBAI shall not be required to pay any of the following expenses incurred by
the Master 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 Master Trust who are
not affiliated with NBAI; outside auditing expenses; outside legal expenses;
fees of independent pricing services utilized by NBAI to value each Fund's
assets; fees of any other service provider to the Master Trust (other than a
sub-administrator engaged pursuant to Paragraph 4); or other expenses not
specified in this Section 5(b) which may be properly payable by the Master Trust
and which are approved by the Master Trust's President or Treasurer.
(3) The Master Trust will compensate NBAI for its services rendered pursuant to
this Agreement in accordance with Schedule A. In addition, the Master Trust
shall reimburse NBAI for certain reasonable out-of pocket distributions made in
connection with fulfilling its obligations under the Agreement. The items
eligible for reimbursement are set forth on Schedule A.
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6. Limitation of Liability; Indemnification.
(a) Stephens shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Master 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.
(b) NBAI shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Master Trust 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.
(c) The Master Trust, on behalf of each Fund, will indemnify Stephens and/or
NBAI against and hold each harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit relating to the particular Fund
and not resulting from the willful misfeasance, bad faith or gross negligence of
Stephens and/or NBAI in the performance of such obligations and duties or by
reason of their reckless disregard thereof. Stephens and/or NBAI will not
confess any claim or settle or make any compromise in any instance in which the
Master Trust will be asked to provide indemnification, except with the Master
Trust's prior written consent. Any amounts payable by the Master Trust under
this Section 6(c) shall be satisfied only against the assets of the Fund
involved in the claim, demand, action or suit and not against the assets of any
other investment portfolio of the Master Trust.
7. Effective Date; Termination of Agreement.
(a) This Agreement shall become effective, on a Fund by Fund basis, upon the
completion of the transfer of a Fund's accounting function to The Bank of New
York, notice of which shall be provided by the Master Trust to Stephens and NBAI
for each Fund. This Agreement shall remain in full force and effect with respect
to such Fund(s) unless terminated pursuant to the provisions of Section 7(c).
(b) The parties agree that the administration arrangements between Stephens and
the Master Trust, dated September 1, 1993, and the sub-administration
arrangements between Stephens and NBAI, dated November 18, 1997, with respect to
the Funds shall be terminated on a Fund by Fund basis upon the effectiveness of
this Agreement.
(c) This Agreement may be terminated at any time without payment of any penalty,
upon 60 days' written notice, by vote of the Board of Trustees of the Master
Trust, by Stephens or by NBAI. Stephens and NBAI will each cooperate with and
assist the Master Trust, its agents and any successor administrator or
administrators in the substitution/conversion process.
(d) Sections 6 and 9 shall survive this Agreement's termination.
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8. Amendments. No provision of this Agreement may be changed, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, discharge or termination is sought.
9. Confidentiality. All books, records, information and data pertaining to the
business of the Master Trust, its prior, present or potential shareholders and
NBAI's customers that are exchanged or received pursuant to the performance of
Stephens' and/or NBAI's duties under this Agreement shall remain confidential
and shall not be disclosed to any other person, except as specifically
authorized by the Master Trust or as may be required by law, and shall not be
used for any purpose other than performance of NBAI's and Stephens'
responsibilities and duties hereunder.
10. Service to Other Companies or Accounts. The Master Trust acknowledges that
both Stephens and NBAI now act, will continue to act and may act in the future
as investment adviser to fiduciary and other managed accounts, and as investment
adviser, investment sub-adviser and/or administrator to other investment
companies or series of investment companies, and the Master Trust has no
objection to either Stephens or NBAI so acting. The Master Trust further
acknowledges that the persons employed by both Stephens and NBAI to assist in
the performance of their duties under this Agreement may not devote their full
time to such service and nothing contained in this Agreement shall be deemed to
limit or restrict the right of Stephens or NBAI or any affiliate of either to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
11. Miscellaneous.
(a) Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Master Trust, 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 the Master Trust:
Nations Master Investment Trust
111 Center Street, Suite 3000
Little Rock, Arkansas 72201
Attention: Secretary
To Stephens:
Stephens Inc.
111 Center Street, Suite 3000
Little Rock, Arkansas 72201
Attention: Richard H. Blank, Jr.
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To NBAI:
NationsBanc Advisors, Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
Attention: Edward D. Bedard
(b) This Agreement shall extend to and shall be binding upon the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
parties.
(c) This Agreement shall be construed in accordance with the laws of the State
of Delaware.
(d) This Agreement may be executed in any number of counterparts each of which
shall be deemed to be an original and which collectively shall be deemed to
constitute only one instrument.
(e) The captions of this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
(f) This Agreement constitutes the entire agreement between the parties hereto
with respect to the matters described herein.
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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: Edward D. Bedard
Title: Senior Vice President and
Chief Operating Officer
NATIONS MASTER INVESTMENT TRUST
By: __________________________________
Name: A. Max Walker
Title: President and Chairman of the
Board
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SCHEDULE I
1. Nations Intermediate Bond Master Portfolio
2. Nations Blue Chip Master Portfolio
3. Nations International Equity Master Portfolio
4. Nations Marsico Focused Equities Master Portfolio
5. Nations Marsico Growth & Income Master Portfolio
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SCHEDULE A
For services rendered pursuant to this Agreement, the Master Trust will
pay Stephens and NBAI, in the aggregate, an administration fee, computed daily
and payable monthly, based on annual rate of each Fund's daily net assets as
follows:
1. Money Market Funds: 0.10%
2. Fixed Income Funds: 0.22%
3. International Funds: 0.22%
4. Domestic Equity Funds: 0.23%
It is understood and agreed among the parties that the aggregate
administration fee payable hereunder shall be divided by and between Stephens
and NBAI, as they may agree from time to time.
In addition to the asset-based fee set forth above, the Master Trust
shall reimburse Stephens, NBAI and any sub-administrator engaged pursuant to
Paragraph 4 for certain reasonable out-of-pocket expenses incurred by them in
connection with the performance of their respective duties hereunder.
Reimbursable out-of-pocket expenses shall include the following:
reasonable costs associated with postage (including overnight services),
telephone, telecommunications (including facsimiles), duplicating, pricing
services, and forms and supplies.
A-1
Exhibit 99.H3
FORM OF
SUB-ADMINISTRATION AGREEMENT
This SUB-ADMINISTRATION AGREEMENT (the "Agreement") is made as of
December 1, 1998 by and among THE BANK OF NEW YORK ("BNY"), NATIONSBANC
ADVISORS, INC. ("NBAI") and NATIONS MASTER INVESTMENT TRUST (the "Master
Trust").
WHEREAS, the Master Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, NBAI serves as the Co-Administrator for the investment
portfolios of the Master Trust pursuant to a separate Co-Administration
Agreement; and
WHEREAS, NBAI desires to retain BNY to render certain
sub-administrative services to the Master Trust and to NBAI, as Co-Administrator
of the Master Trust, and BNY is willing to render such services.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. Appointment and Duties as Sub-Administrator.
(a) NBAI hereby appoints BNY to act as Sub-Administrator of the Master
Trust and to render sub-administrative services for each portfolio of the Master
Trust listed on Schedule I (individually, a "Fund" and collectively, the
"Funds") and BNY hereby accepts such appointment and agrees to render the
services and duties set forth in Schedule II as it may be amended from time to
time, for the compensation and on the terms herein provided. Each new investment
portfolio established in the future by the Master Trust or NBAI will become a
"Fund" for all purposes hereunder when BNY receives a revised Schedule I from
NBAI or the Master Trust that includes such new portfolio.
(b) Subject to the other provisions of this Section 1, in performing
all services under this Agreement, BNY shall (i) act in conformity with the
Master Trust's Declaration of Trust and Bylaws (the "Bylaws"), the 1940 Act and
the rules thereunder, including but not limited to Rules 31a-1 to 31a-3, and
other applicable laws and regulations, as the same may be amended from time to
time, and the Master Trust's Registration Statement, as such Registration
Statement may be amended from time to time; (ii) consult and coordinate with
NBAI and the Master Trust, as necessary and appropriate; and (iii) advise and
report to NBAI and the Master Trust, as necessary or appropriate, with respect
to any compliance matters that come to its attention. In performing all services
under this Agreement BNY shall meet the minimum quality of service standards set
forth on Schedule III.
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(c) The Master Trust has furnished BNY and NBAI with copies properly
certified or authenticated of each of the following: (i) the Master Trust's
Declaration of Trust or other organizational document and all amendments thereto
(the "Declaration"); (ii) the Master Trust's Bylaws; (iii) resolutions of the
Master Trust's Board of Trustees or other governing body (the "Board")
authorizing the execution, delivery and performance of this Agreement by the
Master Trust; (iv) the Master Trust's most recent Post-Effective Amendment to
its Registration Statement on Form N-1A (the "Registration Statement") under the
1940 Act (File No. _____), as filed with the Securities and Exchange Commission
(the "SEC") relating to the Funds' shares (the "Shares"); (iv) the Funds'
current Prospectus(es); (v) the Funds' current Statement(s) of Additional
Information; and (vi) the pricing procedures applicable to the calculation of
the Funds' net asset values as approved by the Master Trust's Board (the
"Pricing Procedures"). It is solely the Master Trust's responsibility to furnish
BNY from time to time with copies, properly certified or authenticated, of all
amendments of or supplements to the foregoing, and BNY will not be held to have
knowledge of any such amendments or supplements until the same are actually
received by BNY. Furthermore, the Master Trust will provide BNY with any other
documents that BNY and NBAI may reasonably request and will notify BNY and NBAI
as soon as possible of any matter materially affecting either BNY's or NBAI's
performance of its services under this Agreement.
(d)(i) BNY undertakes to report on a regular basis to NBAI and the
Master Trust regarding: (A) the readiness of its computer systems, or those used
by it in the performance of its duties hereunder, properly to record, store,
process, calculate or present calendar dates falling on and after, and time
spans including, September 9, 1999, January 1, 2000 or February 29, 2000 (the
"Subject Dates") as a result of the occurrence, or use of data containing any
such Subject Dates; (B) the readiness of its computer systems or those used by
it in the performance of its duties hereunder, to calculate any information
dependent on or relating to dates on or after the Subject Dates; and (C) its
ability to perform the administration and fund accounting services set forth in
Schedule II (the "Services") in accordance with any applicable performance
standards set forth in Schedule III (the "Standards") with respect to the
maintenance of records or processing of data containing dates falling on or
after the Subject Dates, provided that, with respect to computers used but not
owned by BNY and third-party computer systems other than InvestOne, BNY's
responsibility shall be limited to seeking similar reports from such owners or
third parties and promptly forwarding such reports to NBAI. Without limiting the
foregoing, BNY undertakes to notify NBAI and the Master Trust, in writing, of
any concerns believed by BNY to be material regarding the events described in
this paragraph, provided that, with respect to computers owned by others and
third-party computer systems other than InvestOne, BNY's responsibility shall be
limited to seeking similar notice from such owners or third parties and promptly
forwarding such notifications to NBAI.
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(ii) NBAI or the Master Trust shall have the right to terminate this
Agreement if there is a "material failure" by BNY to perform any of the Services
in accordance with the Standards due to a failure by computers owned or used by
BNY in performing its duties hereunder to properly process the occurrence of the
Subject Dates or data containing the Subject Dates. As used in this Section
1(d), the term "material failure" shall be limited to a failure to provide any
of the Services in accordance with the Standards, provided that no such failure
shall be deemed a "material failure" if such failure occurs at or about the time
other major financial institutions similar to BNY providing similar services in
a similar volume to investment companies similar to the Master Trust are
experiencing similar failures, and, provided further, that no failure by BNY
shall be or be deemed a "material failure" if BNY substantially provides the
Services under a contingency plan, it being agreed that, to the extent that the
parties mutually agree, the time frames and deadlines set forth in Schedule III
of this Agreement and elsewhere shall not be considered in determining whether
BNY is substantially providing the Services in accordance with the Standards.
NBAI and the Master Trust agree to act reasonably and in good faith in
considering any request by BNY to extend time frames and deadlines.
(iii) In the event there is a "material failure" by BNY to provide the
Services and such "material failure" is not cured by BNY within 10 days after
such material failure arises, NBAI or the Master Trust shall have the right to
terminate this Agreement upon the giving of 60 days written notice to BNY. BNY
shall, notwithstanding any other provision contained in this Agreement, have no
liability to the Master Trust or NBAI under this Agreement if such "material
failure" initially arose out of or was caused by a failure of a computer used
but not owned by BNY or owned by a third party (other than InvestOne) to
properly process the Subject Dates or data containing the Subject Dates, and BNY
shall be entitled to any compensation and reimbursement for out-of-pocket
expense as may then be due and payable, as well as agreed-upon out-of-pocket
expenses incurred in connection with such a termination. If such a termination
is the result of a "material failure" initially arising out of, or caused by a
failure of computers owned by BNY or a failure by InvestOne, then, first, BNY's
liability hereunder for such failure shall, notwithstanding any other provision
contained in this Agreement to the contrary, be limited to the lesser of (x) the
fees paid to a successor service provider during the six months next succeeding
the date of termination to the extent such fees exceed the fees that would have
been paid to BNY hereunder, and (y) $1,000,000; and second, BNY shall not be
entitled to out-of-pocket expenses incurred in connection with such a
termination.
(iv) In the event of conflict between this Section 1(d) and any other
provision contained in this Agreement, this Section 1(d) shall control.
(v) NBAI and the Master Trust each agree to hold all of the provisions
of this Section 1(d) in strict confidence and not to disclose, nor permit
disclosure of, such provisions.
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(e) Subject to the direction and approval of the Master Trust's Board
and appropriate officers and the provisions of this Agreement, BNY shall provide
to each Fund the administrative services set forth on Schedule II attached
hereto. In performing such services hereunder, BNY shall provide, at its
expense, office space, facilities, equipment and personnel. BNY shall not
provide any services relating to the management, investment advisory or
sub-advisory functions of any Fund, distribution of shares of any Fund,
maintenance of any Fund's financial records (except as otherwise agreed by the
parties) or any services normally performed by the Funds' counsel or independent
accountants. Upon receipt of the Master Trust's prior written consent, BNY may
delegate any of its duties and obligations hereunder to any delegee or agent
whenever and on such terms and conditions as it deems necessary or appropriate.
Unless expressly agreed in writing, BNY shall not be relieved of liability or
responsibility for the performance of any duties or obligations delegated to a
delegee or agent, provided that BNY shall have no liability for duties or
obligations that are delegated to a delegee or agent at the instruction of the
Master Trust or NBAI. The Master Trust and NBAI shall cause their respective
officers, and shall use reasonable efforts to cause the Master Trust's or NBAI's
legal counsel, independent accountants, and transfer agent to cooperate with BNY
and to provide BNY, upon BNY's reasonable written request, such information,
documents and advice relating to such Fund as is within the possession or
knowledge of such persons, in order to enable BNY to perform its duties
hereunder. Such cooperation or provision of information, documents or advice
shall be at no cost to BNY, provided BNY's request is reasonable and NBAI shall
have been notified of the request. In connection with its duties hereunder, BNY
shall be entitled to reasonably rely upon any documents relating to a Fund
provided to BNY by any of the aforementioned persons. BNY may apply to the
Master Trust or NBAI for written instructions with respect to any matter arising
in connection with BNY's performance hereunder. If, after a reasonable period of
time, BNY receives no response to any such application, BNY may then notify the
Master Trust or NBAI of reasonable action that BNY shall take if written
instructions are not received within a stated period of time after such notice,
and then BNY shall not be liable for taking such reasonable action as if written
instructions had been provided. BNY is entitled to reasonably rely and act in
accordance with written instructions believed to have been given by authorized
persons and shall incur no costs for such reasonable reliance. BNY shall have no
duties or responsibilities whatsoever except such duties and responsibilities as
are specifically set forth in this Agreement and Schedule II hereto, and no
covenant or obligation shall be implied against BNY in connection with this
Agreement.
(f) The Master Trust and NBAI, for itself and not for the others,
hereby represents and warrants to BNY, which representations and warranties
shall be deemed to be continuing, that: (i) it is duly organized and existing
under the laws of the jurisdiction of its organization, with full power to carry
on its business as now conducted, to enter into this Agreement and to perform
its obligations hereunder; (ii) this Agreement has been duly authorized,
executed and delivered by it in accordance with all requisite action and
constitutes a valid and legally binding obligation, enforceable in accordance
with its terms; (iii) it is conducting its business substantially in compliance
with all applicable laws and regulations, both state and federal, and has
obtained all regulatory licenses, approvals and consents necessary to carry on
its business as now conducted; (iv) there is no statute, regulation, rule, order
or judgment binding on it and no provision of its Declaration or Bylaws, nor of
any mortgage, indenture, credit agreement or other contract binding on it or
affecting its property which would prohibit its execution or performance of this
Agreement; and (v) the Master Trust and NBAI will use reasonable efforts to
promptly notify BNY of any errors or omissions contained in any reports,
calculations, valuations and other items of information, provided that any
failure by the Master Trust or NBAI to detect any such errors or omissions shall
not relieve BNY of any resulting liability therefrom. To the extent that NBAI
has actual knowledge of any such error or omission and fails to use reasonable
efforts to promptly notify BNY, BNY shall be relieved of any liability that BNY
may have mitigated had NBAI provided notice of such error or omission to BNY.
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(g) BNY hereby represents and warrants to the Master Trust and NBAI,
which representations and warranties shall be deemed to be continuing, that: (i)
it is duly organized and existing under the laws of the jurisdiction of its
organization, with full power to carry on its business as now conducted, to
enter into this Agreement and to perform its obligations hereunder; (ii) this
Agreement has been duly authorized, executed and delivered by it in accordance
with all requisite action and constitutes a valid and legally binding
obligation, enforceable in accordance with its terms; and (iii) it is conducting
its business substantially in compliance with all applicable laws and
regulations, both state and federal, and has obtained all regulatory licenses,
approvals and consents necessary to carry on its business as now conducted;
there is no statute, regulation, rule, order or judgment binding on it and no
provision of its Declaration or Bylaws, nor of any mortgage, indenture, credit
agreement or other contract binding on it or affecting its property which would
prohibit its execution or performance of this Agreement.
2. Compensation. For the services to be rendered, the facilities to be
furnished and the compensation and other expenses to be borne by BNY, as
provided for in this Agreement, BNY shall be entitled to receive a monthly fee
from NBAI and reimbursement for out-of-pocket expenses as set forth in Schedule
IV to this Agreement. It is understood that NBAI shall be responsible for BNY's
monthly fee for its services hereunder, and BNY agrees that it shall have no
claim against the Master Trust or the Funds with respect to compensation under
this Agreement.
3. Recordkeeping. BNY shall, as agent for the Master Trust, and subject
to the direction and approval of the Master Trust's Board and the provisions of
this Agreement, maintain and keep current the books, accounts and other
documents, if any, pursuant to the services and duties provided by BNY as set
forth in Schedule II of this Agreement, and preserve any such books, accounts
and other documents in accordance with the applicable provisions of Rule 31a-2
of the 1940 Act. Such books, accounts and other documents shall be made
available upon reasonable request for inspection by officers, employees and
auditors of the Master Trust and NBAI during BNY's normal business hours. All
records maintained and preserved by BNY pursuant to this Agreement which the
Master Trust is required to maintain and preserve in accordance with Rule 31a-2
of the 1940 Act shall be and remain the property of the Master Trust and shall
be surrendered to the Master Trust promptly upon request in the form in which
such records have been maintained and preserved. Upon reasonable request of the
Master Trust, BNY shall provide in data files or hard copy, whichever the Master
Trust shall reasonably elect, any records included in any such delivery which
are maintained by BNY on a computer disc, or are similarly maintained, and the
Master Trust shall reimburse BNY for its expenses of providing such hard copy.
4. Standard of Care; Indemnification.
(a) BNY shall at all times act in good faith and agrees to use its best
efforts to fulfill its obligations under this Agreement, but assumes no
responsibility for loss or damage to the Master Trust unless such loss or
damages is caused by BNY's own negligence, bad faith or willful misconduct or
that of its directors, officers or employees. BNY shall be responsible hereunder
for all direct damages resulting from its own negligence, bad faith or willful
misconduct, provided however that it shall not be responsible for lost profits
or lost business arising under or in connection with this Agreement. It is
understood and agreed that for purposes of this Section 4(a), "direct damages"
shall include, but shall not be limited to, all legal costs, penalties,
reimbursement for excess distribution and redemption payments, repurchasing
costs for servicing agents and reimbursement to the Funds for net asset value
breaks (as calculated under the Pricing Procedures).
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(b) The Master Trust, on behalf of each Fund, will indemnify BNY
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses of a
defense against any claim, demand, action or suit), relating to the particular
Fund and arising from any one or more of the following: (i) errors in records or
instructions, explanations, information, specifications or documentation of any
kind, as the case may be, supplied to BNY by any person described in Section 1
hereof or by any third party described in Section 5; (ii) action or inaction
taken or omitted to be taken by BNY pursuant to written or oral instructions
described in this Agreement (or otherwise without bad faith, negligence or
willful misconduct); (iii) any action taken or omitted to be taken by BNY in
good faith in accordance with the advice or opinion of counsel for a Fund, the
Master Trust, NBAI (obtained in accordance with the procedures set forth in this
Agreement) or its own counsel; (iv) any improper use by the Fund, the Master
Trust, NBAI or their respective agents, of any valuations or computations
supplied by BNY pursuant to this Agreement; (v) the method of valuation of the
securities and the method of computing a Fund's net asset value or any other
amount computed by BNY hereunder, provided BNY has followed the Pricing
Procedures; and (vi) any valuation of securities, net asset value or other
amount provided by a Fund or NBAI. BNY will not confess any claim or settle or
make any compromise in any instance in which the Master Trust will be asked to
provide indemnification, except with the Master Trust's prior written consent.
Any amounts payable by the Master Trust under this Section 4(b) shall be
satisfied only against the assets of the Fund involved in the claim, demand,
action or suit and not against the assets of any other investment portfolio of
the Master Trust.
5. Fund Accounting Services.
(a) BNY, in performing the services required of it under the terms of
this Agreement, shall be entitled to rely fully on the accuracy and validity of
any and all instructions, explanations, information, specifications and
documentation furnished to it by a Fund and shall have no duty or obligation to
review the accuracy, validity or propriety of such instructions, explanations,
information, specifications or documentation, including, without limitation,
evaluations of securities; the amounts or formula for calculating the amounts
and times of accrual of Fund's liabilities and expenses; the amounts receivable
and the amounts payable on the sale or purchase of securities; and amounts
receivable or amounts payable for the sale or redemption of Fund shares effected
by or on behalf of the Fund. In the event BNY's computations hereunder rely, in
whole or in part, upon information, including, without limitation, bid, offer or
market values of securities or other assets, or accruals of interest or earnings
thereon, from a pricing or similar service utilized, or subscribed to, by BNY
which BNY in its judgment deems reliable, or any other third party pricing
source designated by the Master Trust, BNY shall not be responsible for, under
any duty to inquire into, or deemed to make any assurances with respect to, the
accuracy or completeness of such information. BNY shall not be required to
inquire into any valuation of securities or other assets by the Fund or any
third party described in this Section, even though BNY in performing services
similar to the services provided pursuant to this Agreement for others may
receive different valuations of the same or different securities of the same
issuers.
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(b) Subject to the provisions of this Agreement and the direction and
approval of the Master Trust's Board, BNY shall perform the computations
described in Schedule II at such times and dates and in the manner specified or
described in the then-current Prospectus(es) of a Fund. To the extent valuation
of securities or a computation specified or described in a Fund's Pricing
Procedures or then-current effective Prospectus is at any time inconsistent with
any applicable laws or regulations, the Master Trust or NBAI shall immediately
so notify BNY in writing and thereafter shall furnish BNY at all appropriate
times with the values of such securities and such Fund's net asset value or
other amounts otherwise to be calculated by BNY, or, subject to the prior
approval of BNY, instruct BNY in writing to value securities and make such
computations in a manner which the Master Trust or NBAI then represents in
writing to be consistent with all applicable laws and regulations. The Master
Trust or NBAI may also from time to time, subject to the prior approval of BNY,
instruct BNY in writing to make computations other than as specified in this
Section of this Agreement. By giving such instruction, the Master Trust or NBAI
shall be deemed to have represented that such instruction is consistent with all
applicable laws and regulations and the then-current effective Prospectus of the
particular Fund. The Master Trust or NBAI shall have sole responsibility for
determining the method of valuation of securities and the method of
computations, and all computations, valuation of securities and the method of
computing each Fund's net asset value shall be subject to approval by the Master
Trust and NBAI. BNY shall not be liable for relying on any price provided by any
pricing service believed by BNY to be reliable, and the Master Trust or NBAI
shall furnish values when the same are not available from a pricing service
utilized by BNY, with such furnishing to constitute an instruction to BNY to
rely on the provided values.
(c) BNY shall be responsible for determining and properly reflecting in
the computations made by it made by it under this Agreement: (i) the taxable
nature of any distribution or amount received or deemed received by, or payable
to, a Fund; (ii) the taxable nature or effect on a Fund or its shareholders of
any corporate actions, class actions, tax reclaims, tax refunds, or similar
events; (iii) the taxable nature or taxable amount of any distribution or
dividend paid, payable or deemed paid, by a Fund to its shareholders; (iv) the
effect under any federal, state, or foreign income tax laws of a Fund making or
not making any distribution or dividend payment, or any election with respect
thereto; or (v) any tax accounting; provided, however, that if BNY is not
certain of the taxable nature, amount or effect of any such item, it may seek
instructions regarding the proper treatment of such item from the Master Trust
or NBAI in accordance with the procedures set forth in Section 1(e), above, and
shall have no liability for acting in reliance on such instructions.
6. Termination of Agreement.
(a) This Agreement shall become effective as of the date first set
forth above and shall remain in full force and effect unless terminated pursuant
to the provisions of Section 6(b).
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(b) This Agreement may be terminated at any time without payment of any
penalty, upon 60 days' written notice to BNY by NBAI or by vote of the Board of
the Master Trust; or upon 180 days' written notice to NBAI and the Master Trust
by BNY. Upon any such termination, BNY will cooperate with and assist the Master
Trust, NBAI, their agents and any successor administrator(s) or
sub-administrator(s) in the substitution/conversion process. In connection with
any termination of this Agreement, unless BNY is in breach of this Agreement,
the Funds and NBAI agree to pay BNY any compensation and reimbursement for
out-of-pocket expenses as may then be due and payable, as well as agreed-upon
out-of-pocket expenses incurred in connection with a termination. If BNY is in
breach of this Agreement, the Funds and NBAI may offset any compensation or
reimbursement amounts owed to BNY by the amount of damages, costs and expenses
incurred as a result of BNY's breach, including costs, expenses and reasonable
incremental fees for a period not to exceed one year incurred in connection with
a conversion by the Master Trust and NBAI to a successor service provider. In
the event of a dispute as to the amount of such damages, the Funds and NBAI
agree to escrow the set-off amount.
(c) Sections 4 and 8 shall survive this Agreement's termination.
7. Amendments. Except as expressly provided in the first paragraph of
Section 1, no provision of this Agreement may be amended or modified orally, but
only by an instrument in writing signed by the party against which enforcement
of the amendment or modification is sought.
8. Confidentiality. All books, records, information and data pertaining
to the business of the Master Trust, or its prior, present or potential
shareholders that are exchanged or received in connection with the performance
of BNY's duties under this Agreement shall remain confidential and shall not be
disclosed to any other person, except as specifically authorized by the Master
Trust or as may be required by law, and shall not be used for any purpose other
than performance of its responsibilities and duties hereunder, and except that
BNY retains the right to disclose matters subject to confidentiality to its
examiners, regulators, internal or external auditors, its accountants, its
internal and external counsel, and to any other entity whenever it is advised by
its internal or external counsel that it is reasonably likely that BNY would be
liable for a failure to do so. BNY will endeavor to provide written notice to
the Master Trust and NBAI at least five business days prior to any disclosures
pursuant to this Section 8, but, provided it shall have provided as much notice
as is reasonably practicable under the circumstances, BNY shall have no
liability for any failure to do so.
9. Service to Other Companies. The Master Trust and NBAI acknowledge
that BNY now provides, will continue to provide and may in the future provide
administrative or other services to other investment companies or series of
investment companies, and the Master Trust and NBAI have no objection to BNY so
doing. The Master Trust and NBAI further acknowledge that the persons employed
by BNY to assist in the performance of BNY's duties under this Agreement may not
devote their full time to such service and nothing contained in this Agreement
shall be deemed to limit or restrict the right of BNY or any affiliate of BNY to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
10. Conversion Schedule. If the Master Trust and NBAI, in the exercise
of their reasonable judgment, cannot meet the conversion schedule set forth in
Schedule VI as a result of BNY's inability to provide, or to confirm that it is
capable of providing, the services described in Schedule II or to meet the
quality of service standards set forth in Schedule III with respect to one or
more Funds in accordance with the conversion schedule attached as Schedule VI,
then BNY shall be obligated to pay any resulting incremental costs incurred by
the Master Trust or NBAI, including any incremental fees payable to First Data
Investors Services Group by the Master Trust or NBAI.
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11. Miscellaneous.
(a) This Agreement shall be construed in accordance with the laws of
the State of New York, without regard to conflict of laws principles thereof.
Each Fund, the Master Trust and NBAI hereby consent to the jurisdiction of a
state or federal court situated in New York City, New York in connection with
any dispute arising hereunder. To the extent that in any such jurisdiction any
of the aforementioned persons may now or hereafter be entitled to claim, for
itself or its assets, immunity from suit, execution, attachment (before or after
judgment) or other legal process, each irrevocably agrees not to claim, and it
hereby waives, such immunity.
(b) In case any provision in or obligation under this Agreement shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations shall not in any
way be affected or impaired thereby, and if any provision is inapplicable to any
person or circumstances, it shall nevertheless remain applicable to all other
persons and circumstances.
(c) Each and every right granted to BNY, the Master Trust or NBAI
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of BNY, the Master Trust or
NBAI to exercise, and no delay in exercising, any right will operate as a waiver
thereof, nor will any single or partial exercise by BNY, the Master Trust or
NBAI of any right preclude any other or future exercise thereof or the exercise
of any other right.
(d) BNY shall not be responsible for delays or errors that occur by
reason of circumstances beyond its reasonable control in the performance of its
duties under this Agreement, provided that reasonable back-up and disaster
recovery systems are in place, including, without limitation, labor
difficulties, mechanical breakdowns, computer breakdowns or malfunctions
(hardware or software), flood or catastrophe, acts of God, failures of
transportation, communication or power supply, or other similar circumstances.
Nor shall BNY be responsible for delays or failures to supply the information or
services specified in this Agreement where such delays or failures are caused by
the failure of any person(s) other than BNY to supply any instructions,
explanations, information, specifications or documentation deemed necessary by
BNY in the performance of its duties under this Agreement.
(e) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Master Trust, BNY and/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.
9
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To the Master Trust:
Nations Master Investment Trust
111 Center Street
Little Rock, Arkansas 72201
Attention: Secretary
To NBAI:
NationsBanc Advisors, Inc.
One Bank of America Plaza
101 South Tryon Street, NC1-002-33-31
Charlotte, NC 28255-0001
Attention: Edward D. Bedard
To BNY:
The Bank of New York
90 Washington Street
22nd Floor
New York, NY 10286
Attention: Stephen E. Grunston
(f) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement may not be assigned by BNY, nor may BNY delegate
responsibility for the performance of any of its duties hereunder, without the
written consent of the other parties hereto.
(g) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(h) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(i) This Agreement constitutes the entire agreement between the parties
hereto with respect to the provision by BNY of sub-administrative services and
the receipt of fees therefor, and supersedes all prior arrangements or
understandings, written or oral, with respect to the provision by BNY of such
services and the receipt of fees therefor.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
THE BANK OF NEW YORK
By: _________________________________________________________
Name: Stephen E. Grunston
Title: Vice President
NATIONSBANC ADVISORS, INC.
By: _________________________________________________________
Name: Edward D. Bedard
Title: Senior Vice President and Chief Operating Officer
NATIONS MASTER INVESTMENT TRUST
By: _________________________________________________________
Name: A. Max Walker
Title: President and Chairman of the Board
11
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SCHEDULE I
1. Nations Intermediate Bond Master Portfolio
2. Nations Blue Chip Master Portfolio
3. Nations International Equity Master Portfolio
4. Nations Marsico Focused Equities Master Portfolio
5. Nations Marsico Growth & Income Master Portfolio
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SCHEDULE II
FUND ADMINISTRATION SERVICES
BNY shall perform the following sub-administrative services, in
addition to any other services agreed to from time to time:
o Monitor and document compliance by the Funds with their policies and
restrictions as delineated in their Prospectuses and Statements of
Additional Information, including any supplements or amendments thereto,
and with the rules and regulations under the 1940 Act utilizing Charles
River Development's compliance monitoring system or by such other means as
the parties may agree. NBAI shall be responsible for communicating such
policies and restrictions, including any changes thereto, to BNY by such
means as the parties agree.
o Provide income attribution summary schedules necessary for year-end tax
reporting, including the attached examples. Provide a gross up for foreign
taxes on a per share basis and the redesignation of income and capital
gains on a per share basis.
o Prepare federal, state, excise and local income tax returns for the Funds
and file such returns upon the approval of the Funds' independent
accountants; monitor, report on and prepare periodic worksheet and tax
provision packages with respect to Sub-Chapter M qualifications; prepare
and file all Form 1099s with respect to the Funds' Trustees; monitor
compliance with Section 4982 of the Internal Revenue Code; calculate and
maintain records pertaining to original issue discount and premium
amortization as required; identify wash sales and all other book/tax
differences, and report results to the Funds' independent accountants and
Funds management; and such other duties relating to federal and/or state
tax compliance as the parties may agree. BNY shall be responsible for
providing all pertinent tax information to the Funds' independent
accountants.
o Prepare Return of Capital Statement of Position 93-2 adjustments.
o Support NBAI in its preparation of the schedules and provide NBAI unaudited
quarterly and semi-annual and audited annual financial statements and
schedules of Fund investments by providing, without limitation, each Funds'
schedule of investments and general ledger in electronic format and/or hard
copy, as required, and such other information as may be necessary to
complete such financial reports.
o Prepare statistical reports for outside information services (referenced in
Schedule V), and such other information services as the parties may agree,
including the ICI expense survey.
o Prepare calculations for capital gains pursuant to IRS rules in conjunction
with NBAI and the Funds' independent accountants.
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<PAGE>
o Attend Fund shareholder and Board of Trustees meetings as requested by
NBAI, including making such presentations as are appropriate, and, with
respect to the Fund administration services described herein, provide such
periodic and special reports to the Master Trust and NBAI as the Master
Trust and NBAI shall reasonably request.
FUND ACCOUNTING SERVICES
BNY shall provide all accounting and recordkeeping services necessary
and appropriate for the business of the Funds, including but not limited to
those set forth below.
Required Records; Ledgers and Journals
BNY shall keep current the following accounts and records relating to
the business of the Funds, in such form as is required by the 1940 Act and the
rules thereunder, and generally accepted accounting principles, to support all
filings under applicable federal and state tax laws and regulations and as may
be mutually agreed to among the Master Trust, NBAI and BNY, and shall make
available to NBAI and/or the Master Trust upon request:
1. Cash Receipts Journal
2. Cash Disbursements Journal
3. Dividends Paid and Payable Schedule (book vs. tax basis)
4. Purchase and Sales Journals - Portfolio Securities
5. Realized/Unrealized Gain (Loss) Reports
6. Subscription and Redemption Journals
7. Security Ledgers - Transaction Report and Tax Lot Holdings Report
8. Broker Ledger - Commission Report
9. Daily Expense Accruals
10. Daily Interest Accruals
11. Daily Trial Balance
12. Portfolio Interest Receivable and Income Journal
13. Portfolio Dividend Receivable and Income Register
14. Listing of Portfolio Holdings - showing cost, market value and
percentage of portfolio comprised of each security
15. Aged Receivables (dividends, interest, tax reclaiming)
16. Portfolio Turnover Rate
17. Cash reconciliations
18. Position reconciliations
BNY will be responsible for maintaining, in accordance with Section 31
and the rules thereunder of the 1940 Act, all books and records so required and
generated in the course of performing their duties under this agreement.
Further, at a minimum, BNY shall maintain on-site the above referenced reports
as of each month end for the most recent fiscal year-ended and the current
fiscal year.
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Daily Accounting Services
BNY shall perform the following services on each Business Day:
1. Calculate Net Asset Value (NAV), and Public Offering Price (POP) Per
Share Pursuant to SEC formulas:
o Update the valuation of security positions held by each Fund's
portfolio in accordance with the Fund's Pricing Procedures and any
other appropriate procedures established by the Board and NBAI as NBAI
shall provide BNY in writing
o When instructed by NBAI, enter manual prices supplied by broker and
link to pricing procedures
o Calculate each Fund's NAV/POP in accordance with the applicable Pricing
Procedures approved by the Master Trust's Board of Trustees and prepare
NAV proof sheet. Review components of change in NAV for reasonableness
based on the tolerance levels as NBAI shall direct BNY in writing
o Review variance reporting for price changes in individual securities
using variance levels established by Fund and report to Fund portfolio
managers and to NBAI
o Review for ex-dividend items indicated by pricing sources; trace to
general ledger for agreement
o Communicate required pricing and yield information (NAV/POP), as
appropriate, to NBAI, the Funds' Transfer Agent and Sub-Transfer Agent
and, electronically, to NASDAQ and to such other third parties as
designated by the Funds with respect to its various distribution
channels. In addition, provide Fund share activity to NBAI.
2. Dividend Rates/Yields/Dollar Weighted Average Maturity:
o Calculate, subject to the approval of NBAI, net investment income
available for distribution daily as appropriate
o Calculate daily dividend rate, and 1, 7, 30-day yields/SEC yields
o Calculate dollar weighted average maturity
3. Determine and Report Cash Availability:
o Receive daily cash and transaction statements from the Funds' Custodian
o Complete daily bank cash reconciliations (including documentation of
any reconciling items) and notify the Funds' Custodian
o Report investable cash to NBAI and Fund sub-advisers
4. Daily Expense Accruals:
o Accrue individual expenses on a daily basis based on Instructions
provided by NBAI, except for those instances where such an adjustment
would cause a full penny break in NAV, in which case such adjustment
will be included in the calculation of NAV on the day received
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<PAGE>
o If applicable, accrue daily amortization of organization expense as
instructed by NBAI
o If applicable, accrue daily Rule 12b-1 Plan expenses
o Adjust expense accruals as instructed by NBAI and provide reports as
requested by NBAI
5. Verify and Record All Daily Income Accruals for Debt Issues:
o Track income and provide year end tax schedules
o Review and verify all interest and amortization reports
o Periodic tie-out of receivables
o Ensure security masters denote proper interest and amortization methods
as per the fund set up sheets as instructed by NBAI
6. Monitor Securities:
o Review each funds portfolio holding and current days security trades
for dividend activity
o Interface with Funds' Custodian for timely collection and postings of
corporate actions, dividends and interest pre-payments
7. Enter All Security Trades:
o Review verification of trade and interest calculations
o Verify settlement through custodian statements
o Maintain security ledger transaction reporting
o Maintain tax lot holdings
o Determine realized gains or losses on security trades
o Provide broker commission information
8. Enter All Fund Share Transactions:
o Periodically reconcile dividend payable amounts with the Funds'
Transfer Agent
o Process activity identified on transfer agent reports
o Verify settlement through custodian statements
o Reconcile to transfer agency report balances
o Process and track capital stock gain/loss activity
9. Prepare Daily Trial Balance:
o Post manual entries to general ledger
o Post custodian bank activity
o Require automated settled transactions between custody and activity
records (prepare, clear and post) o Post shareholder and security
transactions
o Post and verify income and expense accruals and resolve differences
o Prepare general ledger
o Post corporate action activity
II-4
<PAGE>
10. Review and Reconcile Custodian Statements:
o Verify all posted interest, dividends, expenses, and shareholder and
security payments/receipts, etc. when requested
o Post all cash settlement activity to trial balance
o Reconcile to ending cash balance accounts
o Report to NBAI the status of past due items and failed trades with the
custodian
o Reconcile cash exception Income items, tax reclaims and past due income
items with custody area
11. Preparation of Accounting Reports:
o Price Variance Report
o Trial Balance
o Portfolio Valuation
o NAV Calculation Report
o Cash Availability
o Change in NAV
o Non-standard entries
o Stale Price Report
o Other such reports as may be reasonably be requested by NBAI
Monthly/Quarterly Services
BNY shall provide the following services on a monthly or quarterly
basis, within such timeframe as may be mutually agreed upon by BNY, the Master
Trust and NBAI:
1. Submission of Monthly Accounting Reports as mutually agreed upon
2. Reconcile Asset Listing to Custodian Asset Listing
3. Provide Monthly Analysis and Reconciliation of Trial Balance Accounts
4. Prepare Documentation Supporting the Preparation of:
o SEC yield reporting
o Income by state reporting
o Standard Industry Code Valuation Report (please provide NBAI's industry
code classifications/is there a standard for all funds)
o Alternative Minimum Tax Income segregation schedule
II-5
<PAGE>
5. Provide Upon Request Broker Commission and Net Trade Reports
Annual (and Semi-Annual) Accounting Services
BNY shall provide the following services on an annual and semi-annual
basis:
1. Supply auditors InvestOne reports supporting securities and shareholder
transactions, income and expense accruals, etc. during the year in
accordance with standard audit assistance requirements
2. Provide NBAI with information to assist NBAI in the preparation of NSAR
filings
Other Core Services
BNY shall provide the following services:
o Accrete discounts and amortize premiums to put and call events as
directed by NBAI and in a manner acceptable under generally accepted
accounting principles
o Process principal repayments on mortgage backed securities
o Update variable securities with current rates
o Process corporate action events through a primary vender feed, and
monitor results via Reuters, Bloomberg, or other available sources as
the parties may agree
o Perform automated portfolio pricing with a second vendor as requested
by NBAI
o Produce documents and respond to inquiries during account and SEC
examinations
Money Market Funds: Prepare daily mark to market reports and analysis
in compliance with Rule 2a-7 including:
o Calculating the daily portfolio weighted average maturity
o Report portfolio diversification based on trade/security information
provided by NBAI by:
Country, State, Tier, Liquidity, Asset Backed Securities, Industry,
Letter of Credit
o Listing percentage of portfolio maturing in specified intervals (I.E.,
number of days)
o Providing issuer and guarantor diversification exception reporting
International Funds: BNY shall provide the following services:
o Report in base and local currency
II-6
<PAGE>
o Processing of tax liability on foreign income subject to approval of
NBAI
o Daily variance analysis performed on FX rates for security position
held
o Produce automated bifurcation reporting in compliance with IRC Section
988
o Mark to market security receivables and payables on a daily basis
o Determine portfolio exposure by country and currency
In addition to the above, BNY will provide additional support as agreed
upon from time to time (i.e., financial statement production).
II-7
<PAGE>
SCHEDULE III
SERVICE LEVEL PERFORMANCE STANDARDS
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------------
SERVICE STANDARD
- ------------------------------------------------------------ ---------------------------------------------------------------
1. Daily Cash Availability |_| 100% accuracy and delivery by 9:00 a.m. EST for
Money Market Funds and 9:30 a.m. EST for all
others
|_| Compensation for uninvested cash at Nations Cash
Reserves' mill rate
- ------------------------------------------------------------ ---------------------------------------------------------------
2. Calculation of daily NAVs |_| 100% accuracy by 5:00 p.m. EST including pricing,
expense accruals, cash activity, manual entries,
S/H activity. Delivery by 5:45 p.m. EST
- ------------------------------------------------------------ ---------------------------------------------------------------
3. Review of daily NAVs |_| 100% review by 5:30 p.m. EST
|_| Review of NAV components for reasonableness
including analysis of the change in the NAV
and the change in mill rates.
|_| Review of price variance report
|_| Review of manual proof
- ------------------------------------------------------------ ---------------------------------------------------------------
4. NASDAQ Reporting |_| 100% accuracy and communication by 5:45 p.m. EST
- ------------------------------------------------------------ ---------------------------------------------------------------
5. Daily Pricing and Rate Report (DPRR) |_| 100% accuracy in nightly transmission of DPRRs
|_| Money Market Funds-5:30 p.m. EST
|_| All other funds- 6:00 p.m. EST
- ------------------------------------------------------------ ---------------------------------------------------------------
6. FundStation Report (SubM) |_| 100% accuracy and nightly transmission
by 7:00 p.m. EST
- ------------------------------------------------------------ ---------------------------------------------------------------
7. Processing of trade tickets |_| 100% accuracy and processed by T+1
if received by the following cut-off times:
|_| All Funds (except International) -
10:00 am (T+1)
|_| International - 12:00 pm (T+1)
|_| Same day settlements - 1:30 pm
- ------------------------------------------------------------ ---------------------------------------------------------------
III-1
<PAGE>
8. Problem Resolution (general) |_| NAV impact analysis within 1 day
|_| Clear and timely communication of 100% of issues
|_| Ongoing Tracking
- ------------------------------------------------------------ ---------------------------------------------------------------
9. Cash reconciliations |_| Performed daily and sent daily to NBAI
(Money Market Funds) and sent weekly
to NBAI (all other funds)
|_| Issues communicated to NBAI same day
|_| Outstanding items addressed within 1 business day
- ------------------------------------------------------------ ---------------------------------------------------------------
10. Position Reconciliations |_| Performed daily and sent weekly to NBAI
|_| Issues communicated to NBAI same day
|_| Open issues addressed within 2 business days
- ------------------------------------------------------------ ---------------------------------------------------------------
11. Tax reporting
|_| Federal, state, tax returns |_| Tax provision package prepared within time
parameters as set by NBAI/Independent tax
|_| Tax provision packages including personnel (PWC)
Sub-M and excise tax amounts/
distributions
|_| Estimates of tax requirements prepared as
|_| Identification of all book/tax required by NBAI for proper tax planning
differences
|_| Capital gain estimate preparations
- ------------------------------------------------------------ ---------------------------------------------------------------
12. Statistical Reports |_| Filed within the time parameters as set forth by
each statistical service
- ------------------------------------------------------------ ---------------------------------------------------------------
13. Expense accruals/payments |_| Payments made on the business day written
instructions from an authorized signator received
|_| Expense accruals made with 100% accuracy based upon
written instructions from NBAI
- ------------------------------------------------------------ ---------------------------------------------------------------
14. Management Reports |_| Provided to NBAI within 10 business days of month end
- ------------------------------------------------------------ ---------------------------------------------------------------
III-2
<PAGE>
15. Year end tax reports |_| Provided to NBAI within the time frame agreed to
- ------------------------------------------------------------ ---------------------------------------------------------------
16. Annual/Semi-Annual Reports |_| Provide Trial Balance within 5 business days after
annual/semi-annual period
|_| Provide additional financial statement support as
agreed to
- ------------------------------------------------------------ ---------------------------------------------------------------
17. Daily Reports |_| To be provided on the following day
|_| Provide detailed portfolio valuation
|_| Trial Balance
- ------------------------------------------------------------ ---------------------------------------------------------------
18. Daily Cash Sweep |_| 100% accuracy and communication by 2:00 p.m. EST
|_| Nations Cash Reserves
|_| AIM
|_| Nuveen
- ------------------------------------------------------------ ---------------------------------------------------------------
19. Post Dividends / Corporate Actions |_| 100% accuracy and posted on effective date
- ------------------------------------------------------------ ---------------------------------------------------------------
20. Monthly Reconciliations |_| Complete reconciliations within 10 business days
- ------------------------------------------------------------ ---------------------------------------------------------------
21. Reporting to Sub-Advisors |_| Provide nightly and other periodic reporting to
Nations Funds Sub-Advisors
- ------------------------------------------------------------ ---------------------------------------------------------------
22. Compliance |_| Provide compliance reports as requested by NBAI
- ------------------------------------------------------------ ---------------------------------------------------------------
</TABLE>
III-3
<PAGE>
SCHEDULE IV
MONEY MARKET FUNDS
1 1/4 basis point per annum on the first $3 billion
of each portfolio's average net assets;
1 basis point on the next $3 billion;
1/2 of one basis point on the next $4 billion;
1/4 of one basis point on the excess.
DOMESTIC EQUITY
6 basis points per annum on the first $1 billion
of each portfolio's average net assets;
4 basis points on the next $500 million;
2 basis points on the next $500 million;
1 basis point on the excess
DOMESTIC FIXED INCOME
5 basis points per annum on the first $1 billion
of each portfolio's average net assets.
3 basis points on the next $500 million.
1 1/2 basis points on the next $500 million.
1/2 of one basis point on the excess.
INTERNATIONAL FUNDS
7 basis points per annum on the first $1 billion
of each portfolio's average net assets;
5 basis points on the next $500 million;
3 basis points on the next $500 million;
1 basis point on the excess.
IV-1
<PAGE>
MINIMUM COMBINED FEE AFTER ALL CONVERSIONS
$1,000,000 per month for combined Fund Administration and Fund Accounting
services for all portfolios.
MULTIPLE CLASS CHARGES
$500 per month, per portfolio, for each additional class in excess of nine
(9) classes.
SYSTEM DEVELOPMENT/USAGE/SPECTRA REPORT WRITER
There will be no charges for developing systems interfaces with the Bank or
for on-going usage of any Bank systems related to fund accounting or
administration services.
ACCOUNTING OUT-OF-POCKET EXPENSES
The cost of prices for securities exclusively held by Nations obtained from
third party pricing vendors will be in addition to the above fees.
ADMINISTRATION OUT-OF-POCKET EXPENSES
These expenses are billed as they are incurred at cost. Out-of-pocket
expenses traditionally include, but are not limited to, cost associated
with attendance at Board Presentations, printing of shareholders reports,
express mail charges, etc.
BILLING CYCLE
The above fees will be billed on a monthly basis.
IV-2
<PAGE>
FUND ACCOUNTING AND SUB ADMINISTRATION FEE SCHEDULE
WHEN AGGREGATE ASSETS EXCEED $100 BILLION
FUND TYPE BASIS POINTS
MONEY MARKET
First $2 billion 0.000100
Next $1 billion 0.000075
On excess (>$3.0 billion) 0.000025
DOMESTIC EQUITY
First $500 million 0.000550
Next $500 million 0.000450
Next $500 million 0.000250
Next $500 million 0.000150
On excess (>$2.0 billion) 0.000050
DOMESTIC FIXED INCOME
First $500 million 0.000450
Next $500 million 0.000350
Next $250 million 0.000225
Next $250 million 0.000100
On excess (>$1.5 billion) 0.000050
INTERNATIONAL
First $500 million 0.000060
Next $500 million 0.000050
Next $250 million 0.000040
Next $250 million 0.000030
On excess (>$1.5 billion) 0.000005
IV-3
<PAGE>
SCHEDULE V
All Database Companies Quarterly List
---------------------- --------------
AMG Data Services Lipper
Barron's Morningstar
Bloomberg CDA Wiesenberger
CDA Wiesenberger Investment Company Institute
Commerce Clearing House (CCH) S&P Micropal
Forbes Institute for Economic Research
Institute for Economic Research Value Line
Interactive Data Services Media General Financial Services
Investment Company Institute LCG Associates
LCG Associates Closed End Fund Digest (Closed End Only)
Lipper Lipper - International (Closed End Only)
Media General
Moody's Investors Service
Morningstar
S&P Micropal
Strategic Insights
Value Line
V-1
<PAGE>
SCHEDULE VI
Conversion Schedule
- ---------------------------- ----------------- ---------------
Fund Type Number of Funds No Later Than
- ---------------------------- ----------------- ---------------
Money Market Funds 9 Funds 12/1/98
- ---------------------------- ----------------- ---------------
Variable Annuity Funds 8 Funds 12/31/98
- ---------------------------- ----------------- ---------------
International Funds: 8 Funds 12/31/98
- Global Government
- Emerging Markets
- Pacific Growth
- International Equity
- International Growth
- International Value
- 2 Marsico Funds
- ---------------------------- ----------------- ---------------
All Remaining Funds 44 Funds 2/15/99
- ---------------------------- ----------------- ---------------
VI-1
<PAGE>
POWER OF ATTORNEY
James B. Sommers, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ James B. Sommers
-------------------------------------
James B. Sommers
<PAGE>
POWER OF ATTORNEY
Carl E. Mundy, Jr., whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ Carl E. Mundy, Jr.
-------------------------------------
Carl E. Mundy, Jr.
<PAGE>
POWER OF ATTORNEY
Edmund L. Benson, III, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ Edmund L. Benson, III
-------------------------------------
Edmund L. Benson, III
<PAGE>
POWER OF ATTORNEY
James Ermer, whose signature appears below, does hereby constitute
and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks, Jr.,
Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each individually,
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, each individually, may deem
necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ James Ermer
-------------------------------------
James Ermer
<PAGE>
POWER OF ATTORNEY
William H. Grigg, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ William H. Grigg
-------------------------------------
William H. Grigg
<PAGE>
POWER OF ATTORNEY
Thomas F. Keller, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ Thomas F. Keller
-------------------------------------
Thomas F. Keller
<PAGE>
POWER OF ATTORNEY
A. Max Walker, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ A. Max Walker
-------------------------------------
A. Max Walker
<PAGE>
POWER OF ATTORNEY
Charles B. Walker, whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Ac, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ Charles B. Walker
-------------------------------------
Charles B. Walker
<PAGE>
POWER OF ATTORNEY
Thomas S. Word, Jr., whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, Richard H. Blank, Jr., James E. Banks,
Jr., Robert M. Kurucza, Marco E. Adelfio and Steven G. Cravath, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable Nations Master
Investment Trust (the "Master Trust"), to comply with the Investment Company Act
of 1940, as amended (the "Act"), and any other applicable federal securities
laws, or rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Master Trust's Registration Statement on Form N-1A pursuant to the Act,
and any and all amendments thereto, and to determine the states in which
appropriate filings should be made and to take any and all necessary and
appropriate actions to make any and all such filings, and any and all amendments
thereto, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee of the Master Trust, such Registration Statement and
filings, any and all exemptive applications under the Act, and any and all
amendments and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
individually or collectively, shall do or cause to be done by virtue hereof.
Dated: December 30, 1998
/s/ Thomas S. Word, Jr.
-------------------------------------
Thomas S. Word, Jr.
<PAGE>
POWER OF ATTORNEY
Richard H. Blank, Jr., whose signature appears below, does hereby
constitute and appoint R. Gregory Feltus, James E. Banks, Jr., Robert M.
Kurucza, Marco E. Adelfio and Steven G. Cravath, each individually, his true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nations Master Investment Trust (the "Master
Trust"), to comply with the Investment Company Act of 1940, as amended (the
"Act"), and any other applicable federal securities laws, or rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Master Trust's Registration
Statement on Form N-1A pursuant to the Act, and any and all amendments thereto,
and to determine the states in which appropriate filings should be made and to
take any and all necessary and appropriate actions to make any and all such
filings, and any and all amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Master Trust, such
Registration Statement and filings, any and all exemptive applications under the
Act, and any and all amendments and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents, individually or collectively, shall do or cause to be done
by virtue hereof.
Dated: December 30, 1998
/s/ Richard H. Blank, Jr.
-------------------------------------
Richard H. Blank, Jr.
