-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E8OWRjvt7MSCAuSbckkemuByfDOF5oJdZLciOZBc5WbMVVTxJ/BihBidCiHmQfL4 mBc5ZfeR8W1TUymaJsvfBQ== 0000950168-01-501457.txt : 20020413 0000950168-01-501457.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950168-01-501457 CONFORMED SUBMISSION TYPE: PRES14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020327 FILED AS OF DATE: 20011220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS INSTITUTIONAL RESERVES CENTRAL INDEX KEY: 0000859750 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: PRES14A SEC ACT: 1934 Act SEC FILE NUMBER: 811-06030 FILM NUMBER: 1819413 BUSINESS ADDRESS: STREET 1: ONE NATIONSBANK PLZ CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003425734 MAIL ADDRESS: STREET 1: ONE NATIONSBANK PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FORMER COMPANY: FORMER CONFORMED NAME: CAPITOL MUTUAL FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SEI CAPITOL FUNDS DATE OF NAME CHANGE: 19900318 PRES14A 1 dpres14a.txt NATIONS FUND RESERVES #1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [X] Preliminary Proxy Statement [_] Confidential, For Use by the [_] Definitive Proxy Statement Commission Only (as permitted by [_] Definitive Additional Materials Rule 14a-6(e)(2)) [_] Soliciting Material Under Rule 14a-12 The Capitol Mutual Funds d/b/a Nations Reserves ------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) ------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: N/A --- - ----------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: N/A --- - ----------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): N/A --- - ----------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: N/A --- - ----------------------------------------------------------------- (5) Total fee paid: N/A - ----------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: N/A --- - ----------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: N/A --- - ----------------------------------------------------------------- (3) Filing Party: N/A --- - ----------------------------------------------------------------- (4) Date Filed: N/A --- - ----------------------------------------------------------------- Notes: NATIONS FUND TRUST NATIONS FUND, INC. NATIONS RESERVES ONE BANK OF AMERICA PLAZA 101 SOUTH TRYON STREET CHARLOTTE, NORTH CAROLINA 28255 TELEPHONE: (800) 653-9427 January 14, 2002 DEAR SHAREHOLDER: We are pleased to invite you to special meetings of shareholders of Nations Bond Fund, Nations California Municipal Bond Fund, Nations California Tax-Exempt Reserves, Nations Cash Reserves, Nations Emerging Markets Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Government Reserves, Nations Intermediate Municipal Bond Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations MidCap Growth Fund, Nations Money Market Reserves, Nations Municipal Income Fund, Nations Municipal Reserves, Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations Short-Term Municipal Income Fund, Nations SmallCap Index Fund, Nations Small Company Fund, Nations Strategic Income Fund, Nations Tax Exempt Fund, Nations Treasury Reserves and Nations Value Fund (the "Funds"). The meetings will be held jointly at 10:00 a.m., Eastern time, on March 27, 2002, at One Bank of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina (the "Meetings"). At the Meetings, you will be asked to approve the reorganization (the "Reorganization") of your Fund into a successor mutual fund (a "Successor Fund") in Nations Funds Trust, another registered investment company within the Nations Funds family. Other than Nations Tax Exempt Fund, each Successor Fund will have the same name, investment objective, principal investment strategies and investment risks as those of your current Fund and the Reorganization will not result in any change to the total operating expense ratios that currently apply to your Fund (both before and after waivers and expense reimbursements). For Nations Tax Exempt Fund shareholders, the name of your Successor Fund will be changed to Nations Tax-Exempt Reserves. It will have the same investment objective, principal investment strategies and investment risks as Nations Tax Exempt Fund, and the Reorganization will not result in any change to the total operating expense ratios that currently apply to your Fund (after waivers and expense reimbursements). The Reorganization will not cause a change to the investment adviser and sub-adviser who manage your Fund. In addition, the features and services that are available to you today as a shareholder will continue to be available to you as a Successor Fund shareholder after the Reorganization. THE BOARDS OF TRUSTEES OF NATIONS FUND TRUST AND NATIONS RESERVES AND THE BOARD OF DIRECTORS OF NATIONS FUND, INC. UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION. The Reorganization offers several potential benefits. First, the Reorganization is part of a broader initiative to streamline the operations of the Nations Funds family, which currently consists of several registered investment companies. As part of the broader initiative, management expects to reduce the number of registered investment companies in the Nations Funds family without necessarily impacting investment alternatives. Streamlining the Nations Funds family in this fashion may lead to additional cost savings by reducing accounting, legal and securities registration costs. Also, the Successor Funds will be part of a Delaware business trust, which generally is viewed as having more flexibility in its operations than a Massachusetts business trust (like Nations Fund Trust or Nations Reserves) or a Maryland corporation (like Nations Fund, Inc.). Finally, each Successor Fund will have more flexibility in its investment policies than your current Fund, including policies that permit it to adopt a "master-feeder" structure. A master-feeder structure, if adopted in the future (for those Funds that haven't already adopted this structure), would allow a Successor Fund to access other distribution channels that might not otherwise be available, thereby potentially achieving additional economies of scale and other benefits that come from greater asset size. If shareholder approval is obtained and the other conditions to the Reorganization are satisfied, it is anticipated that each Fund will be reorganized into its corresponding Successor Fund on or about May 10, 2002 (except Nations California Municipal Bond Fund, Nations Small Company Fund and Nations Value Fund, which are expected to be Reorganized on or about May 17, 2002) when Fund shares will be exchanged for shares of a designated class of shares of the corresponding Successor Fund of equal dollar value. The exchange of shares in the Reorganization is expected to be tax-free under federal income tax law, and shareholders (except those of Nations Bond Fund, Nations Cash Reserves, Nations MidCap Growth Fund, Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund and Nations Value Fund) are not expected to bear any of the customary costs of the Reorganization, because of fee waiver and/or expense reimbursement arrangements. The formal Notice of Special Meetings, Proxy Statement and Proxy Ballot(s) are enclosed. The Reorganization and the reasons for the unanimous recommendation of the Boards are discussed in more detail in the enclosed materials, which you should read carefully. If you have any questions, please do not hesitate to contact us at the toll-free number set forth above. We look forward to your attendance at the Meetings or to receiving your Proxy Ballot(s) so that your shares may be voted at the Meetings. Sincerely, A. MAX WALKER President and Chairman of the Boards of Nations Fund Trust, Nations Fund, Inc. and Nations Reserves 2 YOUR VOTE IS IMPORTANT TO US REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. PLEASE VOTE BY SUBMITTING YOUR PROXY BALLOT(S) TODAY, EITHER IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY ALSO SUBMIT YOUR PROXY BY A TOLL-FREE PHONE CALL OR BY VOTING ON-LINE, AS INDICATED BELOW. - -------------------------------------------------------------------------------- Two Quick And Easy Ways To Submit Your Proxy As a valued Fund shareholder, your proxy vote is important to us. That's why we've made it faster and easier to submit your proxy at your convenience, 24 hours a day. After reviewing the enclosed Proxy Statement ("Proxy Statement") select one of the following quick and easy methods to submit your proxy - accurately and quickly.
Vote on-line Vote By Toll-Free Phone Call 1. Read the enclosed Proxy Statement and have 1. Read the enclosed Proxy Statement and have your Proxy Ballot(s)* at hand. your Proxy Ballot(s)* at hand. 2. Go to Web site www.proxyvote.com 2. Call toll-free 1-800-690-6903. 3. Enter the 12-digit Control Number found on 3. Enter the 12-digit Control Number found on your Proxy Ballot(s). your Proxy Ballot(s). 4. Submit your proxy using the easy-to-follow 4. Submit your proxy using the easy-to-follow instructions. instructions.
* Do not mail the Proxy Ballot(s) if submitting your proxy by Internet or telephone. - -------------------------------------------------------------------------------- NATIONS FUND TRUST NATIONS FUND, INC. NATIONS RESERVES ONE BANK OF AMERICA PLAZA 101 SOUTH TRYON STREET CHARLOTTE, NORTH CAROLINA 28255 TELEPHONE: (800) 653-9427 NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS To Be Held on March 27, 2002 SHAREHOLDERS: PLEASE TAKE NOTE THAT a special meeting of shareholders of Nations Bond Fund, Nations California Municipal Bond Fund, Nations California Tax-Exempt Reserves, Nations Cash Reserves, Nations Emerging Markets Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Government Reserves, Nations Intermediate Municipal Bond Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations MidCap Growth Fund, Nations Money Market Reserves, Nations Municipal Income Fund, Nations Municipal Reserves, Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations Short-Term Municipal Income Fund, Nations SmallCap Index Fund, Nations Small Company Fund, Nations Strategic Income Fund, Nations Tax Exempt Fund, Nations Treasury Reserves and Nations Value Fund (the "Funds") will be held at 10:00 a.m., Eastern time, on March 27, 2002, at One Bank of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina, for the purpose of considering and voting upon: ITEM 1. A proposed agreement and plan of reorganization dated as of January 1, 2002 that provides for the reorganization of your Fund into a corresponding successor fund. ITEM 2. Such other business as may properly come before the meetings or any adjournment(s). THE BOARDS OF TRUSTEES OF NATIONS FUND TRUST AND NATIONS RESERVES AND THE BOARD OF DIRECTORS OF NATIONS FUND, INC. UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION. Shareholders of record as of the close of business on December 27, 2001 are entitled to notice of, and to vote at, the meetings or any adjournment(s) thereof. SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY BALLOT(S), WHICH IS BEING SOLICITED BY, AND ON BEHALF OF, THE BOARDS OF TRUSTEES OF NATIONS FUND TRUST AND NATIONS RESERVES AND BY THE BOARD OF DIRECTORS OF NATIONS FUND, INC. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETINGS. SHAREHOLDERS ALSO MAY SUBMIT THEIR PROXIES: 1) BY TELEPHONE AT (800) 690-6903; OR 2) ON-LINE AT THE WEBSITE WWW.PROXYVOTE.COM. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO NATIONS FUNDS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETINGS AND VOTING IN PERSON.
By Order of the Boards of Directors and Trustees, RICHARD H. BLANK, JR. Secretary of Nations Fund Trust, Nations Fund, Inc. and Nations Reserves
January 14, 2002 PROXY STATEMENT Dated January 14, 2002 NATIONS FUND TRUST NATIONS FUND, INC. NATIONS RESERVES ONE BANK OF AMERICA PLAZA 101 SOUTH TRYON STREET CHARLOTTE, NORTH CAROLINA 28255 TELEPHONE: (800) 653-9427 For ease of use, certain terms or names that are used in this Proxy Statement have been shortened or abbreviated. A list of these terms and their corresponding full names or definitions can be found at the end of this Proxy Statement in Appendix A. A shareholder may find it helpful to review the terms and names in Appendix A before reading the Proxy Statement. This Proxy Statement is furnished in connection with the solicitation of proxies by the Boards of the Trust, the Company and Reserves at the Meetings of the Funds. The Meetings have been called to consider the following proposal: ITEM 1. A proposed Reorganization Agreement dated as of January 1, 2002 that provides for the reorganization of your Fund into a corresponding Successor Fund. ITEM 2. Such other business as may properly come before the Meetings or any adjournment(s). Each Successor Fund is referred to as a "successor" because each was created to receive the assets and liabilities and to continue the operations of its corresponding Fund. While there are some differences between the Funds and their corresponding Successor Funds, which are discussed below, an investment in a Successor Fund will be considered substantially the same as an investment in its corresponding Fund. Additional information about the Funds is available in their prospectuses, statements of additional information (or SAIs) and annual and semi-annual reports to shareholders. All of this information is in documents filed with the SEC. The Funds' annual reports to shareholders for the fiscal year ended March 31, 2001 and semi-annual reports to shareholders for the fiscal period ended September 30, 2001 previously have been mailed to shareholders. Additional copies of any of these documents are available without charge by writing the address given above or by calling (800) 321-7854. These documents also are available on the SEC website at www.sec.gov. Shareholders may, after the Reorganization, obtain copies of the prospectuses and Statements of Additional Information relating to the Successor Funds without charge by calling (800) 321-7854 or by writing Nations Funds at the address set forth above. It is expected that this Proxy Statement will be mailed to shareholders on or about January 14, 2002. 1 THE REORGANIZATION The Boards have called the Meetings to ask shareholders to consider and vote on one proposal - approval of the Reorganization Agreements. Please be sure to read the entire Proxy Statement to determine how the Reorganization would affect your investment before casting your vote. There are certain aspects of the Reorganization of the Tax Exempt Fund that differ from the Reorganization of the other Funds. Tax Exempt Fund shareholders should read the important note below. Description of the Proposal At the Meetings, the shareholders of each of the Funds will be asked to approve the Reorganization. If shareholder approval is obtained, and the other conditions to the Closing are met, shareholders will receive shares of the same class of the corresponding Successor Fund equal in value to their holdings of Fund shares immediately before the Reorganization. Each Fund will then be liquidated and, if shareholders of all Funds approve the Reorganization of their Funds (and shareholders of all other funds of the Trust, the Company and Reserves also approve separate reorganizations of their funds), the Trust, the Company and Reserves will be de-registered under the 1940 Act and dissolved under state law. Except for Tax Exempt Fund, each Successor Fund will have the same name, investment objective, investment adviser, investment sub-adviser, principal investment strategies and investment risks as its corresponding Fund. In addition, the Reorganization will not result in any change to the total operating expense ratios (before or after waivers and/or reimbursements) of the various classes of shares, except for Tax Exempt Fund (which is discussed in the note below). Similarly, the features and services that are available to Fund shareholders today will continue to be available to Successor Fund shareholders after the Reorganization. However, the Successor Funds differ in some respects from the Funds, and these differences are described in more detail below. - -------------------------------------------------------------------------------- Special Note for Tax Exempt Fund Shareholders Only The Reorganization of the Tax Exempt Fund differs from the Reorganization of the other Funds primarily in three ways: 1) the name of the Tax Exempt Fund will change to Nations Tax-Exempt Reserves. This change will not result in a change to the Fund's investment objective, principal investment strategies or investment risks. Nor will this name change result in any change to the Fund's investment adviser or sub-adviser or other service providers after the Reorganization; 2) the class of shares into which Tax Exempt Fund shareholders will be reorganized will be different; and 3) a limited number of Fund policies and shareholder services will be different. For more information about the Reorganization of the Tax Exempt Fund, see "Comparison of Tax Exempt Fund and its Successor Fund" and Appendix B to this Proxy Statement. - -------------------------------------------------------------------------------- Description of the Reorganization Agreements The Reorganization Agreements are the governing documents of the Reorganization. Among other things, each Reorganization Agreement provides for: (i) the transfer of all of the assets and liabilities of a Fund to its corresponding Successor Fund in exchange for shares of equal value of the designated classes of the Successor Fund; and (ii) the distribution of Successor Fund shares to Fund shareholders in liquidation of their Fund. Each Reorganization Agreement also sets forth representations and warranties of the parties, describes the mechanics of the transaction and includes a number of conditions to the completion of the Reorganization, such as the requirement that a good standing certificate be obtained by each party and that no regulatory barriers have been issued by the SEC. The completion of the Reorganization also is conditioned upon the Trust, the Company, Reserves and Nations Funds Trust, as applicable, receiving an opinion from Morrison & Foerster LLP that the exchange of shares contemplated under the Reorganization will be tax-free under federal income tax law. 2 Each Reorganization Agreement provides that the Reorganization may be abandoned at any time before Closing by any party to a Reorganization Agreement if any condition is not satisfied or otherwise by mutual consent of the parties. At any time before or (to the extent permitted by law) after approval of a Reorganization Agreement by Fund shareholders: (i) the parties may, by written agreement authorized by the Board of the Trust, the Company, Reserves or Nations Funds Trust, as applicable, and with or without the approval of shareholders, amend any of the provisions of the respective Reorganization Agreement; and (ii) either party may waive any default by the other party for the failure to satisfy any of the conditions to its obligations (the waiver to be in writing and authorized by the respective Board with or without the approval of shareholders). Additionally, each Reorganization Agreement provides that the Reorganization of one Fund is not conditioned upon the Reorganization of any other Fund. Upon completion of the Reorganization, all outstanding shares of each Fund will be canceled. Exchange or redemption requests received thereafter will be deemed to be exchange or redemption requests for shares of the corresponding Successor Fund. Each Reorganization Agreement provides that a Fund will only bear the expenses of the Reorganization to the extent that the Fund's operating expenses have not exceeded certain "caps" that have been put in place. Because of these caps, it is expected that only some of the Funds, including Bond Fund, Cash Reserves, MidCap Growth Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Strategic Income Fund and Value Fund, will bear the costs associated with the Reorganization, including solicitation costs. Because these Funds are currently operating below the expense caps that have been put in place or do not have expense caps, Bond Fund is expected to pay approximately $85,000; Cash Reserves is expected to pay approximately $470,000; MidCap Growth Fund is expected to pay approximately $96,000; Short-Intermediate Government Fund is expected to pay approximately $99,000; Short-Term Income Fund is expected to pay approximately $83,000; Strategic Income Fund is expected to pay approximately $94,000; and Value Fund is expected to pay approximately $113,000 in costs associated with the Reorganization. All Funds may, however, bear certain expenses such as brokerage commissions and other transaction charges, as well as interest on borrowed money or extraordinary expenses, that may be associated with the Reorganization. A copy of each Reorganization Agreement is available at no charge by calling (800) 653-9427 or writing Nations Funds at the address listed on the first page of the Proxy Statement. Copies of any Reorganization Agreement are also available at the SEC's website (www.sec.gov). Reasons for the Reorganization and Other Considerations o The Nations Funds Family Reorganization - The Reorganization is the final phase of a broader initiative begun two years ago to streamline the operations of the Nations Funds Family. A primary goal of the initiative is to reduce the number of registered investment companies in the Nations Funds Family without necessarily impacting investment alternatives. This final phase combines all of the remaining Funds of the Trust, the Company and Reserves into series of Nations Funds Trust. Management and the Boards believe that operating fewer registered investment companies offers potential efficiencies and benefits to shareholders over the long-term. These efficiencies and benefits include potential cost savings from the reduction of accounting, legal, filing and securities registration costs. If shareholders of the Funds approve the Reorganization (and shareholders of all of the other funds of the Trust, the Company and Reserves approve similar reorganizations), management will de-register and dissolve the Trust, the Company and Reserves. The Successor Funds will be part of a Delaware business trust, which generally is viewed as having more flexibility in its operations than a Maryland corporation (like the Company) or Massachusetts business trusts (like the Trust and Reserves). Also, as part of Nations Funds Trust, the Successor Funds will be governed under a more flexible charter document which can be amended by Nations Funds Trust's Board without the necessity of soliciting shareholders, thereby saving costs relating to proxy solicitations on certain routine matters. Specifically, the Successor Funds will have greater flexibility in their investment policies, including policies that, for example, permit them to: 3 >> adopt a "master-feeder" structure. A master-feeder structure will only be adopted if the Board of Nations Funds Trust approves such a change as being in the interests of a Successor Fund and its shareholders. In evaluating this change, the Board will consider both the potential benefits and disadvantages of this type of structure. One potential advantage is that feeder funds investing in the same master portfolio can reduce their expenses through sharing the costs of managing and administering a larger combined pool of assets, which can come from other distribution channels -- such as private investment companies or offshore fund investors -- that would not otherwise be available to stand-alone mutual funds. One potential disadvantage is that if there are other feeders in the master portfolio, a Successor Fund's voting impact on the master portfolio could be diminished. Additionally, if the Successor Fund were to withdraw its investment from the master portfolio, such withdrawal could result in a distribution in kind of portfolio securities (as opposed to cash) by the master portfolio to the Successor Fund. That distribution could result in a less diversified portfolio of investments and could adversely affect the liquidity of the Successor Fund's investment portfolio. In addition, if securities were distributed, the Successor Fund generally would incur brokerage commissions, capital gains or losses, and/or other charges in converting the securities to cash. This could result in a lower net asset value of a shareholder's shares and/or certain adverse tax consequences for a shareholder. >> participate in interfund lending among the Nations Funds Family. Management expects to file an exemptive application with the SEC that will permit funds in the Nations Funds Family to lend to and borrow money from each other for temporary purposes. At any particular time, the Funds may need to borrow money for temporary purposes to satisfy redemption requests, to cover unanticipated cash shortfalls such as a trade "fail" in which cash payment for a security sold by a Fund has been delayed, or for other temporary purposes. The Funds currently have a line of credit with their custodian, which is designed to cover reasonably anticipated borrowing needs. The rate of interest that is paid by the Funds when they borrow is significantly higher than the rate that would be earned by them on repurchase agreements. The lending arrangements are expected to reduce the Successor Funds' potential borrowing costs and enhance the ability of the lending Successor Funds to earn higher rates of interest on their short-term lendings. Certain of the Funds' fundamental investment policies currently prohibit the Funds from participating in the proposed interfund lending arrangements. The Successor Funds, however, have adopted fundamental investment policies that will allow them to take advantage of these arrangements, assuming that the SEC issues an exemptive order. o Achieving economies of scale for certain Funds - In addition to the reasons cited above, an additional reason for the Reorganization of California Municipal Bond Fund, Intermediate Municipal Bond Fund, MidCap Growth Fund and Short-Intermediate Government Fund is that management expects that their corresponding Successor Funds may experience a significant increase in assets from the conversions of common trust funds that are currently not part of the Nations Funds Family. Although it is not possible to predict whether the trustee of the common trust funds will approve these transactions, if consummated, management should be able to offer Successor Fund shareholders lower total operating expense ratios because of the economies of scale that would be expected to result from larger asset size. Board Consideration The Boards of the Trust, the Company and Reserves unanimously voted to approve the Reorganization Agreements at special meetings held on October 10, 2001. During deliberations, the Boards (with the advice and assistance of independent counsel) reviewed and considered, among other things: (1) the Reorganization as part of a broader initiative to streamline the operations of the Nations Funds Family; (2) the various aspects and terms of the Reorganization and the Reorganization Agreements; (3) that total operating expense ratios (before and after waivers and/or reimbursements) charged to each Successor Fund class after the Reorganization would be no higher than that of the corresponding Fund class prior to the Reorganization, except for Tax Exempt Fund; (4) that for Tax Exempt Fund shareholders, Successor Fund total operating expense ratios (before waivers and/or reimbursements) would be 4 higher and total operating expense ratios (after waives and/or reimbursements) would be no higher after the Reorganization; (5) that the investment objectives, principal investment strategies and investment risks of the Funds and their corresponding Successor Funds are identical; (6) that, except for Tax Exempt Fund, shareholders will experience no change in shareholder services; (7) that the Successor Funds as part of Nations Funds Trust will have greater flexibility in their investment policies and will be governed under a more flexible charter document which could be amended by the Board of Nations Funds Trust without the necessity of soliciting shareholders, thereby potentially saving future costs relating to proxy solicitations on certain routine matters; (8) the anticipated tax-free nature of the exchange of shares in the Reorganization; (9) that, to the extent Funds and their shareholders will bear the expenses of the Reorganization, the Boards considered that such costs were justified by the potential benefits of the Reorganization. In this regard, the Boards also considered that BA Advisors and other service providers currently waive fees and/or reimburse expenses for many of the Funds; and (10) any potential benefits of the Reorganization, if any, to other persons, including BA Advisors and its affiliates (e.g., the benefit of consolidating resources within BA Advisors and its affiliates). Based upon their evaluation of the information presented to them, and in light of the fiduciary duties under federal and state law, the Boards of the Trust, the Company and Reserves including all of the non-interested Directors/Trustees, determined that participation in the Reorganization, as contemplated by the respective Reorganization Agreements, was in the best interests of each Fund, and that the shares of each Fund will not be diluted as a result of the Reorganization. Similarly, the Board of Trustees of Nations Funds Trust, including all of the non-interested Trustees, also evaluated the Reorganization and based upon its evaluation of the information presented to it, and in light of its fiduciary duties under federal and state law, determined that participation in the Reorganization, as contemplated by each Reorganization Agreement, was in the best interests of the Successor Funds and that the shares of the Successor Funds will not be diluted as a result of the Reorganization. THE BOARDS OF THE TRUST, THE COMPANY AND RESERVES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE TO APPROVE THEIR REORGANIZATION AGREEMENT. Comparison of the Funds and Successor Funds As noted above, there are some differences between the Funds and their corresponding Successor Funds, which are summarized below: o After the Reorganization, Fund shareholders will hold shares in series of Nations Funds Trust, a registered investment company in the Nations Funds Family. Unlike the Trust and Reserves, which are Massachusetts business trusts, and the Company, which is a Maryland corporation, Nations Funds Trust is a Delaware business trust. o The Funds and the Successor Funds will have somewhat different fundamental investment policies. As part of Nations Funds Trust, the Successor Funds will have greater flexibility in their investment policies. There are additional differences between Tax Exempt Fund and its Successor Fund, Tax-Exempt Reserves. For a discussion of these differences see "Comparison of Tax Exempt Fund and its Successor Fund" and also Appendix B. Comparison of Forms of Business Organization Federal securities laws largely govern the way that mutual funds operate, but they do not cover every aspect of a fund's existence and operation. State law and a fund's governing documents fill in most of these gaps and typically create additional operational rules and restrictions that funds must follow. All of the Funds, except Small Company Fund, are series of a Massachusetts business trust. Small Company Fund is a series of a Maryland corporation. The Successor Funds are series of a Delaware business trust. While there are few differences among these forms of organization, one advantage of a Delaware business trust is its potential for greater flexibility. Generally, under Delaware business trust law, a mutual fund's governing instrument, called a declaration of trust, 5 may establish the way it will operate with few state law requirements or prohibitions. Thus, mutual funds organized in Delaware generally have more flexibility in their operations and greater certainty about any operational restrictions. The following discussion outlines some of the differences between the Trust and Reserves (which are Massachusetts business trusts), the Company (which is a Maryland corporation) and Nations Funds Trust (which is a Delaware business trust). o The Board of Trustees. The Board of Nations Funds Trust has eleven Trustees, ten of whom currently serve as Board members of the Trust, the Company and Reserves, with the eleventh currently serving in an advisory capacity to the Board of the Trust, the Company and Reserves. o Governing Law. Unlike Maryland corporate law and Massachusetts business trust law, the Delaware Business Trust Act has been specifically drafted to accommodate the unique governance needs of investment companies and provides that its policy is to give maximum freedom of contract to the trust instrument (discussed below) of a Delaware business trust. For example, Delaware law provides that, should a Delaware trust issue multiple series of shares, each series will not be liable for the debts of another series. Maryland law allows the same. However, although remote, this is a potential risk that a series of a Massachusetts business trust may be liable for the debts of another of its series. In addition, Delaware has obtained a favorable national reputation for its business laws and business environment. The Delaware courts, which may be called upon to interpret the Delaware Business Trust Act, are among the nation's most highly respected and have an expertise in corporate matters. Accordingly, there is a well-established body of precedent which may be relevant in deciding issues pertaining to a Delaware business trust. o Governing Documents. Maryland corporations are typically governed by organizational documents called articles of incorporation and by-laws. Massachusetts business trusts and Delaware business trusts are governed by similar sets of documents, typically called a declaration of trust and by-laws. These governing documents are generally similar, although there are some differences. For example, in order for the Company to dissolve under Maryland law, a majority of all outstanding shares of the Company generally must approve its dissolution. In contrast, the Declaration of Trust of Nations Funds Trust generally provides that Nations Funds Trust, or any series of Nations Funds Trust, may be dissolved at any time by the Board of Nations Funds Trust upon written notice to shareholders. In addition, Nations Funds Trust's Declaration of Trust, as permitted by Delaware law, provides that shareholders of series of Nations Funds Trust will be entitled to vote on mergers, acquisitions and consolidations involving such series, only to the extent required by federal securities law. By limiting mandatory shareholder votes to those matters expressly required under the federal securities laws, the Successor Funds may save costs by not having to schedule special shareholder meetings and solicit shareholder proxies. Although shareholders of a Successor Fund of Nations Funds Trust may no longer have certain rights, it is anticipated that the Successor Funds will benefit from a reduction in expenses associated with potential proxy solicitations on these matters. In general, the attributes of a share of beneficial interest in the case of a Massachusetts business trust are comparable to those of a share of beneficial interest of a Delaware business trust, such as Nations Funds Trust, i.e., shares of all are entitled to one vote per share held and fractional votes for fractional shares held. o Shareholder Liability. Under Maryland law, shareholders are not personally liable for the debts of a Fund. Under Massachusetts law, shareholders may, in certain circumstances, be held personally liable for the debts and obligations of a Massachusetts business trust. Under Delaware law, shareholders of a Delaware business trust like Nations Funds Trust are not personally liable for the debts and obligations of such trust. 6 Comparison of Investment Policies and Restrictions The Successor Funds also will have a more streamlined set of fundamental investment policies than the Funds. Some of the Funds' current fundamental investment policies may limit their portfolio management team from investing in a security (such as the sale of a security short) that is both consistent with a Fund's investment objective and also believed to be a good investment. One reason for changing some of the fundamental investment policies is to remove these restrictions that unnecessarily hamper the portfolio management team's investment discretion. Some of these restrictions were originally put in place by the Funds as a result of the directives of various state securities commissions. Changes to federal securities laws have superseded these directives and are, accordingly, no longer necessary. In addition, the Funds currently have fundamental investment policies that prohibit them from participating in interfund lending arrangements. The Successor Funds, however, have fundamental investment policies that will permit them to take part in these arrangements. Assuming that the SEC grants an exemptive order that the Nations Funds Family is expected to apply for, the Successor Funds may be able to experience substantial cost savings for temporary lending or borrowing activities. Another reason that management wishes to change the Funds' fundamental investment policies is its desire to migrate towards uniform investment policies for all funds in the Nations Funds Family. Uniform policies could lead to efficiencies in administering the Funds' activities, including ensuring compliance with law and internal procedures. The Funds and Successor Funds have identical non-fundamental investment policies. For a detailed comparison of the fundamental investment policies of the Funds and the Successor Funds, see Appendix C to this Proxy Statement. Comparison of Advisory and Other Service Arrangements and Fees With the exception of Tax Exempt Fund, the Funds and the Successor Funds have the same service providers and the same fee arrangements. Immediately after the Reorganization, these service providers are expected to continue to serve the Successor Funds in the capacities indicated below and the fee arrangements will remain unchanged.
Service Providers for the Funds and the Successor Funds Investment Adviser BA Advisors Investment Sub-Adviser BACAP; Gartmore (for Emerging Markets Fund) Distributor Stephens Inc. Co-Administrator BA Advisors Co-Administrator Stephens Inc. Sub-Administrator The Bank of New York Custodian The Bank of New York Transfer Agent PFPC Inc. Sub-Transfer Agent Bank of America (for Primary A shares only) Independent Accountants PricewaterhouseCoopers LLP
BA Advisors and the Successor Funds are seeking an exemptive order from the SEC that would permit BA Advisors to engage a different or additional sub-adviser for a Successor Fund, to continue the engagement of a sub-adviser who has experienced a change in its ownership or corporate structure or under an agreement that has materially changed, with the approval of the Board of Nations Funds Trust, but without submitting the sub-advisory change to a vote of the Successor Fund's shareholders, under certain circumstances. If this exemptive order is granted and the Reorganization is approved, BA Advisors or the Successor Funds will inform shareholders of any such sub-advisory change, which may include: (i) engaging new or additional sub-advisers, (ii) terminating or replacing one or more sub-advisers, or (iii) materially amending an existing sub-advisory agreement. Unless and 7 until this exemptive order is granted and the proposed Reorganization is approved, consistent with applicable law, the Funds and Successor Funds will continue to submit any sub-advisory change to shareholders for approval. Comparison of Fees and Expenses The Reorganization will not result in any change to the total operating expense ratios (before or after waivers and/or expense reimbursements) of the various classes, except for Tax Exempt Fund. The changes to the expense ratios of Tax Exempt Fund are discussed in Appendix B. Comparison of Purchase, Redemption, Distribution and Exchange Policies and Other Shareholder Transactions and Services After the Reorganization, Fund shareholders will hold shares of the same class of the Successor Fund that they held in each Fund, except for Tax Exempt Fund (whose Reorganization is discussed below). For example, a Fund shareholder who owns Investor A shares will, immediately after the Reorganization, hold Investor A shares in the corresponding Successor Fund. Accordingly, all of the purchase, redemption, distribution and exchange policies as well as other shareholder transactions and services applicable to a shareholder's share class will remain unaffected and unchanged by the Reorganization. As noted, no sales charges or sales loads will be imposed in connection with the exchange of shares in the Reorganization. Comparison of Tax Exempt Fund and its Successor Fund As noted above, the Reorganization of the Tax Exempt Fund differs from the Reorganization of the other Funds primarily in three ways: 1) the name of the Tax Exempt Fund will change to Tax-Exempt Reserves. This change will not result in a change to the Fund's investment objective, principal investment strategies or investment risks. Nor will this name change result in any change to the Fund's investment adviser or sub-adviser or other service providers after the Reorganization; 2) the class of shares into which Tax Exempt Fund shareholders will be reorganized will be a different share class; and 3) some of the purchase, distribution, exchange policies and other shareholder transactions and services will be different. As a result of the Reorganization, Primary A shareholders would become Trust Class shareholders; Primary B shareholders would become Investor Class shareholders; Daily shareholders would become Daily Class shareholders; Investor A shareholders would remain Investor A shareholders; Investor B shareholders would become Investor Class shareholders; and Investor C shareholders would become Investor Class shareholders. These changes will result (depending upon class) in either higher or lower total operating expense ratios (before waivers and/or expense reimbursements). See Appendix B for more information on the changes to fees and expenses. However, in no case will total operating expense ratios (after waivers and/or expense reimbursements) change as a result of the Reorganization. Some of these changes are discussed below. How Shares Are Priced and How Orders Are Processed -------------------------------------------------- All transactions are based on the price of a Fund's shares--or its net asset value per share. Net asset value per share is calculated at the times indicated below. Orders to buy, sell and exchange shares are processed on business days, which generally are days that the Federal Reserve Bank of New York and the New York Stock Exchange are open. Orders received by Stephens Inc., PFPC Inc., or their agents by the time shown below on a business day (unless a Fund or Successor Fund closes early) will receive that day's net asset value per share. Orders received after these times will receive the next business day's net asset value per share. The Funds or Successor Funds may refuse any order to buy or exchange shares. If this happens, the Funds will return any money received.
Orders Received by this Time Will ---------------------------------- Shares Are Priced at this Time: Receive that Day's Net Asset Value: ------------------------------- -----------------------------------
8
Tax Exempt Fund 12 Noon, Eastern time 12 Noon, Eastern time Tax-Exempt Reserves (successor) [ ], Eastern time [ ], Eastern time
Purchase, Redemption, Distribution and Exchange Policies and Other ------------------------------------------------------------------ Shareholder Transactions and Services - ------------------------------------- Daily Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Daily Shares are substantially similar to those of the corresponding Successor Fund's Daily Class Shares, with the following exceptions: >> Distribution (12b-1) fees - Stephens Inc., the Fund's -------------------------- distributor, and selling agents are compensated for selling shares under distribution plans. For such services, these service providers may receive a maximum distribution (12b-1) fee from the Daily Shares of 0.45%; they may receive a maximum distribution (12b-1) fee from the Daily Class Shares of 0.35%. >> Exchange features - [ ]. ----------------- Investor A Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Investor A Shares are substantially similar to those of the corresponding Successor Fund's Investor A Shares, with the following exceptions: >> Administration fees - BA Advisors, its affiliates and/or other ------------------- financial institutions and intermediaries may receive a fee for providing certain shareholder administration services. For such services, these entities may receive a maximum shareholder administration fee from the Successor Fund's Investor A Shares of 0.10%. The Fund's Investor A Shares do not have a shareholder administration plan. >> Exchange features - [ ]. ----------------- Investor B Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Investor B Shares are substantially similar to those of the corresponding Successor Fund's Investor Class Shares, with the following exceptions: >> Exchange features - [ ]. ----------------- Investor C Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Investor C Shares are substantially similar to those of the corresponding Successor Fund's Investor Class Shares, with the following exceptions: >> Distribution fees - Stephens Inc., the Fund's distributor, and ----------------- selling agents are compensated for selling shares under distribution plans. For such services, these service providers may receive a maximum distribution (12b-1) fee from the Successor Fund's Investor Class Shares of 0.10%. The Fund's Investor C Shares do not have a distribution (12b-1) plan. >> Exchange features - [ ]. ----------------- Primary A Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Primary A Shares are substantially similar to those of the corresponding Successor Fund's Trust Class Shares, with the following exceptions: Administration fees - BA Advisors, its affiliates and/or other ------------------- financial institutions and intermediaries may receive a fee for providing certain shareholder administration services. For such services, these 9 entities may receive a maximum shareholder administration fee from the Successor Fund's Trust Class Shares of 0.10%. The Fund's Primary A Shares do not have a shareholder administration plan. >> Exchange features - [ ]. ----------------- Primary B Shares of Tax Exempt Fund: The purchase, redemption, distribution and exchange policies of the Primary B Shares are substantially similar to those of the corresponding Successor Fund's Investor Class Shares, with the following exceptions: >> Administration fees - BA Advisors, its affiliates and/or other ------------------- financial institutions and intermediaries may receive a fee for providing certain shareholder administration services. For such services, these entities may receive a maximum shareholder administration fee from the Successor Fund's Investor Class Shares of 0.10%. The Fund's Primary B Shares do not have a shareholder administration plan. >> Exchange features - [ ]. ----------------- >> Other compensation - Selling and servicing agents also may receive ------------------ in connection with the Successor Fund's Trust Class Shares: a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Investor Class Shares. The Fund's Primary B Shares do not pay this type of compensation. Material Federal Income Tax Consequences As noted, the exchange of shares in the Reorganization is expected to be tax free under federal income tax law. The following discussion summarizes the material federal income tax consequences of the Reorganization that are applicable to Fund shareholders. It is based on the Code, applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this Proxy Statement and all of which are subject to change, including changes with retroactive effect. The discussion below does not address any state, local or foreign tax consequences of the Reorganization. A Fund shareholder's tax treatment may vary depending upon his or her particular situation. A Fund shareholder also may be subject to special rules not discussed below if they are a certain kind of shareholder, including: an insurance company; a tax-exempt organization; a financial institution or broker-dealer; a person who is neither a citizen nor resident of the United States or entity that is not organized under the laws of the United States or political subdivision thereof; a holder of Fund shares as part of a hedge, straddle or conversion transaction; or a person that does not hold Fund shares as a capital asset at the time of the Reorganization. Neither the Trust, the Company, Reserves nor Nations Funds Trust has requested or will request an advance ruling from the Internal Revenue Service as to the federal income tax consequences of the Reorganization or any related transaction. The Internal Revenue Service may adopt positions contrary to that discussed below and such positions could be sustained. A Fund shareholder is urged to consult with his or her own tax advisors and financial planners as to the particular tax consequences of the Reorganization to the Fund shareholder, including the applicability and effect of any state, local or foreign laws, and the effect of possible changes in applicable tax laws. The Reorganization, with respect to each Fund and its corresponding Successor Fund, is intended to qualify as a "reorganization" for federal income tax purposes. In this regard, the obligation of the Funds and the Successor Funds to consummate the Reorganization is conditioned upon the receipt by the Trust, the Company, Reserves and Nations Funds Trust of an opinion of Morrison & Foerster LLP reasonably acceptable to the Trust, the Company, Reserves and Nations Funds Trust substantially to the effect that the Reorganization, with respect to each Fund and its corresponding Successor Fund, will be treated for federal income tax purposes as a tax-free reorganization under Section 368(a) of the Code and, in such connection, that the Fund and its corresponding Successor Fund will each be a party to a reorganization within the meaning of Section 368(b) of the Code. Provided that the Reorganization so qualifies: 10 o Neither the Funds, the Successor Funds nor their respective shareholders will recognize any gain or loss pursuant to the Reorganization. o A Fund shareholder's aggregate tax basis for the Successor Fund shares received pursuant to the Reorganization will equal such shareholder's aggregate tax basis in Fund shares held immediately before the Reorganization. o A Fund shareholder's holding period for the Successor Fund shares received pursuant to the Reorganization will include the period during which the Fund shares are held. The tax opinion of Morrison & Foerster LLP described above is based upon facts, representations and assumptions to be set forth or referred to in the opinion and the continued accuracy and completeness of representations made by the Trust, the Company, Reserves, on behalf of their respective Funds, and Nations Funds Trust, on behalf of the Successor Funds, which if incorrect in any material respect would jeopardize the conclusions reached by Morrison & Foerster LLP in the opinion. In addition, in the event that the Trust, the Company, Reserves and/or Nations Funds Trust are unable to obtain the tax opinion, they are permitted under the Reorganization Agreement to waive the receipt of such tax opinion as a condition to their obligation to consummate the Reorganization. Regardless of whether the acquisition of the assets and liabilities of each Fund by the corresponding Successor Fund qualifies as a tax-free reorganization as described above, the sale of securities by the Fund prior to the Reorganization, whether in the ordinary course of business or in anticipation of the Reorganization, could result in a taxable distribution to Fund shareholders. Since its formation, each Fund and Successor Fund believes it has qualified as a separate "regulated investment company" under the Code. Accordingly, each Fund and Successor Fund believes it has been, and expects to continue to be, relieved of federal income tax liability on its taxable income distributions to its shareholders. VOTING MATTERS General Information This Proxy Statement is being furnished in connection with the solicitation of proxies for the Meetings by, and on behalf of, the Boards. It is expected that the solicitation of proxies will be primarily by mail. Officers and service contractors of the Trust, the Company and Reserves also may solicit proxies by telephone or otherwise. Shareholders may submit their proxy: (1) by mail, by marking, signing, dating and returning the enclosed proxy ballot(s) in the enclosed postage-paid envelope; (2) by phone at (800) 690-6903; or (3) by on-line voting at www.proxyvote.com. Any shareholder submitting a proxy may revoke it at any time before it is exercised at the Meetings by submitting a written notice of revocation addressed to Nations Funds at the address shown on the cover page of this Proxy Statement, or a subsequently executed proxy or by attending the Meetings and voting in person. Supplementary solicitations may be made by mail, telephone, telegraph, facsimile, electronic means or by personal interview by representatives of the Trust, the Company, Reserves or Nations Funds Trust. In addition, ___________ may be paid on a per-call basis to solicit shareholders on behalf of the Funds at an anticipated cost of approximately $______ for Bond Fund, $______ for California Municipal Bond Fund, $______ for California Tax-Exempt Reserves, $______ for Cash Reserves, $______ for Emerging Markets Fund, $______ for Florida Intermediate Municipal Bond Fund, $______ for Florida Municipal Bond Fund, $______ for Government Reserves, $______ for Intermediate Municipal Bond Fund, $______ for LargeCap Index Fund, $______ for Managed Index Fund, $______ for MidCap Growth Fund, $______ for Money Market Reserves, $______ for Municipal Income Fund, $______ for Municipal Reserves, $______ for Short-Intermediate Government Fund, $______ for Short-Term Income Fund, $______ for Short-Term Municipal Income Fund, $______ for SmallCap Index Fund, $______ for Small Company Fund, $______ for Strategic Income Fund, $______ for Tax Exempt Fund, $______ for Treasury Reserves and $______ for Value Fund. 11 Only shareholders of record at the close of business on December 27, 2001 will be entitled to vote at the Meetings. On that date the following were the number shares outstanding and entitled to vote for each Fund. Each whole and fractional share of a Fund is entitled to a whole or fractional vote. ___________ Bond Fund ___________ California Municipal Bond Fund ___________ California Tax-Exempt Reserves ___________ Cash Reserves ___________ Emerging Markets Fund ___________ Florida Intermediate Municipal Bond Fund ___________ Florida Municipal Bond Fund ___________ Government Reserves ___________ Intermediate Municipal Bond Fund ___________ LargeCap Index Fund ___________ Managed Index Fund ___________ MidCap Growth Fund ___________ Money Market Reserves ___________ Municipal Income Fund ___________ Municipal Reserves ___________ Short-Intermediate Government Fund ___________ Short-Term Income Fund ___________ Short-Term Municipal Income Fund ___________ SmallCap Index Fund ___________ Small Company Fund ___________ Strategic Income Fund ___________ Tax Exempt Fund ___________ Treasury Reserves ___________ Value Fund If the accompanying proxy ballot(s) is executed and returned in time for the Meetings, the shares covered thereby will be voted in accordance with the proxy on all matters that may properly come before the Meetings. Quorum A quorum is constituted with respect to a Fund by the presence in person or by proxy of the holders of more than one-half of the outstanding shares of the Fund entitled to vote at the Meetings. For purposes of determining the presence of a quorum for transacting business at the Meetings, abstentions will be treated as shares that are present at the Meetings but which have not been voted. Accordingly, abstentions will have the effect of a "no" vote for purposes of obtaining the requisite approvals of the Reorganization Agreement. Broker "non-votes" (that is, proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares on a particular matter with respect to which the brokers or nominees do not have discretionary power) will be treated the same as abstentions. In the event that a quorum is not present at the Meetings, or in the event that a quorum is present at the Meetings but sufficient votes to approve the Reorganization Agreement are not received by a Fund, one or more adjournment(s) may be proposed to permit further solicitation of proxies for a reasonable period in order to obtain a requisite vote. Any such adjournment(s) will require the affirmative vote of a majority of those shares affected by the adjournment(s) that are represented at the Meetings in person or by proxy. If a quorum is present, the persons named as proxies will vote those proxies which they are entitled to vote FOR the particular proposal for which a quorum exists in favor of such adjournment(s), and will vote those proxies required to be voted AGAINST such proposal against any adjournment(s). Shareholder Approval 12 For Bond Fund, Florida Intermediate Municipal Bond Fund, Florida Municipal Bond Fund, Intermediate Municipal Bond Fund, LargeCap Index Fund, Managed Index Fund, MidCap Growth Fund, Municipal Income Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Short-Term Municipal Income Fund, SmallCap Index Fund, Strategic Income Fund, Tax Exempt Fund and Value Fund shareholders, their Reorganization Agreement must be approved by the affirmative vote of at least a majority of the outstanding shares of a Fund. For California Municipal Bond Fund, California Tax-Exempt Reserves, Cash Reserves, Emerging Markets Fund, Government Reserves, Money Market Reserves, Municipal Reserves and Treasury Reserves shareholders, their Reorganization Agreement must be approved by the affirmative vote of at least a majority of the shares of a Fund present in person or by proxy. For Nations Small Company Fund shareholders, their Reorganization Agreement must be approved by the affirmative vote of at least a majority of the shares of the Fund present in person or by proxy, and to dissolve the Company the affirmative vote of at least a majority of the outstanding shares of the Company voting in the aggregate. The Reorganization of any Fund is not conditioned upon the Reorganization of any other Fund. Accordingly, it is possible that one or more Fund(s)' shareholders will not approve the Reorganization and such Fund(s) will not be reorganized. In this event, the Board(s) will consider what further action is appropriate. A vote of the shareholders of the Successor Funds is not being solicited, since their approval or consent is not necessary for the Reorganization. Principal Shareholders The table below shows the name, address and share ownership of each person known to the Trust to have ownership with respect to 5% or more of a class of a Fund as of November 30, 2001. Each shareholder is known to own as of record the shares indicated below. Any shareholder known to the Trust, the Company or Reserves to own such shares beneficially is designated by an asterisk. [5% table to be inserted] For purposes of the 1940 Act, any person who owns directly or through one or more controlled companies more than 25% of the voting securities of a company is presumed to "control" such company. Accordingly, to the extent that a shareholder identified in the foregoing table is identified as the beneficial holder of more than 25% of a class, or is identified as the holder of record of more than 25% of a class and has voting and/or investment power, it may be presumed to control such class. As of December 27, 2001, Bank of America had voting control of _____% of the outstanding shares of [insert Fund name]. Accordingly, Bank of America may be considered to "control" such Funds. The address of Bank of America is: 1401 Elm Street, 11th Floor, Dallas, TX 75202-2911. Bank of America's control is likely to increase the chance that the Funds' shareholders will approve the proposed items. As of December 27, 2001, the officers and Board members of the Trust, the Company and Reserves as a group did not own more than 1% of any class of any Fund. Annual Meetings and Shareholder Meetings Neither the Trust, the Company, Reserves nor Nations Funds Trust presently holds annual meetings of shareholders for the election of Trustees/Directors and other business unless otherwise required by the 1940 Act. 13 APPENDIX A Glossary
Term Used in Proxy Statement Definition - ---------------------------- ---------- 1933 Act ......................................... Securities Act of 1933, as amended 1934 Act ......................................... Securities Exchange Act of 1934, as amended 1940 Act ......................................... Investment Company Act of 1940, as amended Adviser .......................................... BA Advisors, BACAP and/or Gartmore, as the context may require BA Advisors ...................................... Banc of America Advisors, LLC BACAP ............................................ Banc of America Capital Management, LLC Bank of America .................................. Bank of America, N.A. Board ............................................ Any one Board of Trustees/Directors of the Trust, the Company, Reserves or Nations Funds Trust Boards ........................................... One or more of the Boards of Trustees/Directors of the Trust, the Company, Reserves or Nations Funds Trust Bond Fund ........................................ Nations Bond Fund California Municipal Bond Fund ................... Nations California Municipal Bond Fund California Tax-Exempt Reserves ................... Nations California Tax-Exempt Reserves Cash Reserves .................................... Nations Cash Reserves Closing .......................................... Closing of the Reorganization, expected to occur on May 10, 2002, except for California Municipal Bond Fund, Small Company Fund and Value Fund and Cash Reserves, which is expected to occur on May 17, 2002 Code ............................................. Internal Revenue Code of 1986, as amended Company .......................................... Nations Fund, Inc. Companies ........................................ the Company, the Trust, Reserves and Nations Funds Trust Emerging Markets Fund ............................ Nations Emerging Markets Fund Florida Intermediate Municipal Bond Fund ......... Nations Florida Intermediate Municipal Bond Fund Florida Municipal Bond Fund ...................... Nations Florida Municipal Bond Fund Fund(s) .......................................... Nations Bond Fund, Nations California Municipal Bond Fund, Nations California Tax-Exempt Reserves, Nations Cash Reserves, Nations Emerging Markets Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Government Reserves, Nations Intermediate Municipal Bond Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations MidCap Growth Fund, Nations Money Market Reserves, Nations Municipal Income Fund, Nations Municipal Reserves, Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations Short-Term Municipal Income Fund, Nations SmallCap Index Fund, Nations Small Company Fund, Nations Strategic Income Fund, Nations Tax Exempt Fund, Nations Treasury Reserves and Nations Value Fund Gartmore ......................................... Gartmore Global Partners Government Reserves .............................. Nations Government Reserves Intermediate Municipal Bond Fund ................. Nations Intermediate Municipal Bond Fund LargeCap Index Fund .............................. Nations LargeCap Index Fund Managed Index Fund ............................... Nations Managed Index Fund Meeting(s) ....................................... The shareholder meetings of the Funds that will be held jointly at 10:00 a.m., Eastern time, on March 27, 2002, at One Bank of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte,
A-1
North Carolina MidCap Growth Fund ............................... Nations MidCap Growth Fund Money Market Reserves ............................ Nations Money Market Reserves Municipal Income Fund ............................ Nations Municipal Income Fund Municipal Reserves ............................... Nations Municipal Reserves Nations Funds or Nations Funds Family ............ The fund complex that includes the Companies Proxy Statement .................................. This Proxy Statement Reorganization ................................... The reorganization of the Fund(s) into the Successor Fund(s) Reorganization Agreement(s) ...................... One or more of the: Agreement and Plan of Reorganization dated January 1, 2002 by and between Nations Fund Trust, on behalf of its Funds, and Nations Funds Trust, on behalf of the Successor Funds; Agreement and Plan of Reorganization dated January 1, 2002 by and between Nations Fund, Inc., on behalf of its Funds, and Nations Funds Trust, on behalf of the Successor Funds; and Agreement and Plan of Reorganization dated January 1, 2002 by and between Nations Reserves, on behalf of its Funds, and Nations Funds Trust, on behalf of the Successor Funds Reserves ......................................... The Capitol Mutual Funds d/b/a Nations Reserves SEC .............................................. United States Securities and Exchange Commission Short-Intermediate Government Fund ............... Nations Short-Intermediate Government Fund Short-Term Income Fund ........................... Nations Short-Term Income Fund Short-Term Municipal Income Fund ................. Nations Short-Term Municipal Income Fund SmallCap Index Fund .............................. Nations SmallCap Index Fund Small Company Fund ............................... Nations Small Company Fund Strategic Income Fund ............................ Nations Strategic Income Fund Successor Fund(s) ................................ Nations Bond Fund (successor), Nations California Municipal Bond Fund (successor), Nations California Tax-Exempt Reserves (successor), Nations Cash Reserves (successor), Nations Emerging Markets Fund (successor), Nations Florida Intermediate Municipal Bond Fund (successor), Nations Florida Municipal Bond Fund (successor), Nations Government Reserves (successor), Nations Intermediate Municipal Bond Fund (successor), Nations LargeCap Index Fund (successor), Nations Managed Index Fund (successor), Nations MidCap Growth Fund (successor), Nations Money Market Reserves (successor), Nations Municipal Income Fund (successor), Nations Municipal Reserves (successor), Nations Short-Intermediate Government Fund (successor), Nations Short-Term Income Fund (successor), Nations Short-Term Municipal Income Fund (successor), Nations SmallCap Index Fund (successor), Nations Small Company Fund (successor), Nations Strategic Income Fund (successor), Nations Tax-Exempt Reserves (successor), Nations Treasury Reserves (successor) and Nations Value Fund (successor) Tax Exempt Fund .................................. Nations Tax Exempt Fund Tax-Exempt Reserves (successor) .................. Nations Tax-Exempt Reserves, the Successor Fund to Tax Exempt Fund Treasury Reserves ................................ Nations Treasury Reserves Trust ............................................ Nations Fund Trust Value Fund ....................................... Nations Value Fund
A-2 APPENDIX B Expense Summaries of Tax Exempt Fund The following tables describe the fees and expenses associated with holding Tax Exempt Fund and its corresponding Successor Fund shares. In particular, the tables (a) compare the fees and expenses as of August 31, 2001, for each class of Tax Exempt Fund and the corresponding class of its Successor Fund, and (b) show the estimated fees and expenses for the Successor Fund on a pro forma basis after giving effect to the Reorganization. The fund operating expense levels shown in this Proxy Statement assume net asset levels as of August 31, 2001; pro forma expense levels shown should not be considered an actual representation of future expenses or performance. Such pro forma expense levels project anticipated levels but may be greater or less than those shown. The pro forma expense presentations are not shown for any other Funds or Successor Funds because in each such case fees and expenses for the Successor Fund would remain exactly the same as that of its corresponding Fund prior to the Reorganization. B-1 Primary A Shares/Trust Class
Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Shareholder administration fees... 0.00% 0.10% o Other expenses... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 0.33% 0.38% o Fee waivers and/or reimbursements... (0.03%) (0.08%) ------- ------- o Total net expenses/1/... 0.30% 0.30% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Primary A Shares of the Fund or Trust Class Shares of the Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $31 $103 $182 $415 Tax-Exempt Reserves (successor) $31 $114 $205 $473 B-2
Primary B Shares/Investor Class Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Distribution (12b-1) and/or shareholder servicing fees... 0.25% 0.35% o Other expenses... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 0.58% 0.63% o Fee waivers and/or reimbursements... (0.03%) (0.08%) ------- ------- o Total net expenses/1/... 0.55% 0.55% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Primary B Shares of the Fund or Investor Class Shares of the Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $56 $183 $321 $723 Tax-Exempt Reserves (successor) $56 $194 $343 $779 B-3
Investor A Shares Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Shareholder administration fees ... 0.00% 0.10% o Distribution (12b-1) and/or shareholder servicing fees... 0.35% 0.35% o Other expenses ... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 0.68% 0.73% o Fee waivers and/or reimbursements... (0.03%) (0.08%) ------- ------- o Total net expenses/1/... 0.65% 0.65% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Investor A Shares of the Fund or Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $66 $215 $376 $844 Tax-Exempt Reserves (successor) $66 $225 $398 $899 B-4
Investor B Shares/Investor Class Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Distribution (12b-1) and/or shareholder servicing fees... 0.35% 0.35% o Other expenses... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 0.68% 0.63% o Fee waivers and/or reimbursements... (0.13%) (0.08%) ------- ------- o Total net expenses/1/... 0.55% 0.55% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Investor B Shares of the Fund or Investor Class Shares of the Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $56 $204 $366 $834 Tax-Exempt Reserves (successor) $56 $194 $343 $779 B-5
Investor C Shares/Investor Class Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Distribution (12b-1) and/or shareholder servicing fees... 0.35% 0.35% o Other expenses... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 0.58% 0.63% o Fee waivers and/or reimbursements... (0.03%) (0.08%) ------- ------- o Total net expenses/1/... 0.55% 0.55% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Investor C Shares of the Fund or Investor Class Shares of the Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $56 $183 $321 $723 Tax-Exempt Reserves (successor) $56 $194 $343 $779 B-6
Daily Shares/Daily Class Tax-Exempt Reserves Tax Exempt Fund (successor) --------------- ----------- Shareholder Fees (fees paid directly from your investment) o Maximum sales charge (load) imposed on purchases, as a % of offering price... none none o Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value... none none Annual Fund Operating Expenses (Expenses that are deducted from the Fund's assets) o Management fees... 0.20% 0.15% o Distribution (12b-1) and/or shareholder servicing fees... 0.70% 0.60% o Other expenses... 0.13% 0.13% ----- ----- o Total annual Fund operating expenses... 1.03% 0.88% o Fee waivers and/or reimbursements... (0.23%) (0.08%) ------- ------- o Total net expenses/1/... 0.80% 0.80% ===== ===== - ------------------------------ /1/The Funds' investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date.
Example This example is intended to help you compare the cost of investing in the Fund and Successor Fund with the cost of investing in other mutual funds. This example assumes: you invest $10,000 in Daily Shares of the Fund or Daily Class Shares of the Successor Fund for the time periods indicated and then sell all of your shares at the end of those periods; you reinvest all dividends and distributions in the Fund or Successor Fund; your investment has a 5% return each year; the Fund's and Successor Fund's operating expenses remain the same as shown in the table above; and the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund 1 year 3 years 5 years 10 years Tax Exempt Fund $82 $305 $546 $1,239 Tax-Exempt Reserves (successor) $82 $273 $480 $1,077 B-7 APPENDIX C Comparison of Fundamental Policies and Limitations of the Funds and the Successor Funds Fundamental Investment Policies and Limitations
Bond Fund, Florida Intermediate Municipal Bond Their Successor Funds may not: Fund, Florida Municipal Bond Fund, Intermediate Municipal Bond Fund, LargeCap Index Fund, Managed Index Fund, MidCap Growth Fund, Municipal Income Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Short- Term Municipal Income Fund, SmallCap Index Fund, Strategic Income Fund, Tax Exempt Fund and Value Fund may not: - ------------------------------------------------------------------------------ ----- ---------------------------------------------- 1. Underwrite securities issued by any other person, 1. Underwrite any issue of securities within the except to the extent that the purchase of securities meaning of the 1933 Act except when it might and the later disposition of such securities in technically be deemed to be an underwriter either accordance with the Fund's investment program (a) in connection with the disposition of a may be deemed an underwriting. This restriction portfolio security, or (b) in connection with the shall not limit a Fund's ability to invest in purchase of securities directly from the issuer securities issued by other registered investment thereof in accordance with its investment companies. objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Invest in real estate or real estate limited 2. Purchase or sell real estate, except a Fund may partnership interests. (A Fund may, however, purchase securities of issuers which deal or invest purchase and sell securities secured by real estate in real estate and may purchase securities which or interests therein or issued by issuers which are secured by real estate or interests in real invest in real estate or interests therein.) This estate. restriction does not apply to real estate limited partnerships listed on a national stock exchange (e.g., the NYSE). 3. Purchase or sell commodity contracts except that 3. Purchase or sell commodities, except that a Fund each Fund may, to the extent appropriate under may to the extent consistent with its investment its investment policies, purchase publicly traded objective, invest in securities of companies that securities of companies engaging in whole or purchase or sell commodities or which invest in in part in such activities, may enter into futures such programs, and purchase and sell options, contracts and related options, may engage in forward contracts, futures contracts, and options transactions on a when-issued or forward on futures contracts. This limitation does not commitment basis, and may enter into forward apply to foreign currency transactions including currency contracts in accordance with its without limitation forward currency contracts. investment policies.
C-1
Bond Fund, Florida Intermediate Municipal Bond Fund, Their Successor Funds may not: Florida Municipal Bond Fund, Intermediate Municipal Bond Fund, LargeCap Index Fund, Managed Index Fund, MidCap Growth Fund, Municipal Income Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Short- Term Municipal Income Fund, SmallCap Index Fund, Strategic Income Fund, Tax Exempt Fund and Value Fund may not: - ------------------------------------------------------------------------------ ----- ---------------------------------------------- 4. Make loans, except that a Fund may purchase and 4. Make loans, except to the extent permitted by the hold debt instruments (whether such instruments 1940 Act, the rules and regulations thereunder are part of a public offering or privately placed), and any exemptive relief obtained by the Funds. may enter into repurchase agreements and may lend portfolio securities in accordance with its investment policies. 5. Borrow money or issue senior securities as 5. Borrow money or issue senior securities except to defined in the 1940 Act except that (a) a Fund the extent permitted by the 1940 Act, the rules may borrow money from banks for temporary and regulations thereunder and any exemptive purposes in amounts up to one-third of the value relief obtained by the Funds. of such Fund's total assets at the time of be borrowing, provided that borrowings in excess of 5% of the value of such Fund's total assets will repaid prior to the purchase of additional portfolio securities by such Fund, (b) a Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities, which commitments may be considered the issuance of senior securities, and (c) a Fund may issue multiple classes of shares in accordance with SEC regulations or exemptions under the 1940 Act. The purchase or sale of futures contracts and related options shall not be considered to involve the borrowing of money or issuance of senior securities. Each Fund may enter into reverse repurchase agreements or dollar roll transactions. The purchase or sale of futures contracts and related options shall not be considered to involve the borrowing of money or issuance of senior securities.
C-2
Bond Fund, Florida Intermediate Municipal Bond Their Successor Funds may not: Fund, Florida Municipal Bond Fund, Intermediate Municipal Bond Fund, LargeCap Index Fund, Managed Index Fund, MidCap Growth Fund, Municipal Income Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Short- Term Municipal Income Fund, SmallCap Index Fund, Strategic Income Fund, Tax Exempt Fund and Value Fund may not: - ------------------------------------------------------------------------------ ----- ---------------------------------------------- 6. Purchase any securities which would cause 25% 6. Purchase any securities which would cause 25% or more of the valueof the Fund's total assets at or more of the value of its total assets at the time the time of such purchase to be invested in the of purchase to be invested in the securities of one securities of one or more issuers conducting their or more issuers conducting their principal principal activities in the same industry, provided business activities in the same industry, provided that this limitation does not apply to investments that: (a) there is no limitation with respect to in obligations issued or guaranteed by the U.S. obligations issued or guaranteed by the U.S. Government, any state or territory of the United Government, any state or territory of the United States, or any of their agencies, instrumentalities States, or any of their agencies, instrumentalities or political subdivisions. In addition, this or political subdivisions, and (b) notwithstanding limitation does not apply to investments by this limitation or any other fundamental "money market funds" as that term is used under investment limitation, assets may be invested in the 1940 Act, in obligations of domestic banks. the securities of one or more management investment copies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 7. Except for Florida Intermediate Municipal Bond 7. Purchase securities (except securities issued Fund and Florida Municipal Bond Fund, purchase or guaranteed by the U.S. Government, its agencies securities of any one issuer (other than U.S. or instrumentalities) of any one issuer if, as a Government Obligations) if, immediately after result, more than 5% of its total assets will be such purchase, more than 5% of the value of such invested in the securities of such issuer or it Fund's total assets would be invested in the would own more than 10% of the voting securities of such issuer, except that up to 25% of securities of such issuer, except that (a) up to the value of the Fund's total assets may be 25% of its total assets may be invested without invested without regard to these limitations and regard to these limitations and (b) a Fund's assets with respect to 75% of such Fund's assets, such may be invested in the securities of one or more Fund will not hold more than 10% of the voting management investment companies to the extent securities of any issuer. permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 8. Purchase any securities on margin (except for 8. No corresponding fundamental investment policy such short-term credits as are necessary for the clearance of purchases and sales of portfolio securities) or sell any securities short (except against the box.) For purposes of this restriction, the deposit or payment by the Fund of initial or maintenance margin connection with futures contracts and related options and options on securities is not considered to be the purchase of a security on margin.
C-3
Small Company Fund may not: Its Successor Fund may not: - ----------------------------------------------------------------------------------------------------------------------------------- 1. Underwrite securities issued by any other person, 1. Underwrite any issue of securities within the except to the extent that the purchase of securities meaning of the 1933 Act except when it might and the later disposition of such securities in technically be deemed to be an underwriter accordance with the Fund's investment program either (a) in connection with the disposition may be deemed an underwriting. This restriction of a portfolio security, or (b) in connection shall not limit a Fund's ability to invest in with the purchase of securities directly from securities issued by other registered the issuer thereof in accordance with its investment companies. objective. investment This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Invest in real estate or real estate limited 2. Purchase or sell real estate, except a Fund partnership interests. (A Fund may, however, may purchase securities of issuers which deal purchase and sell securities secured by real or invest in real estate and may purchase estate or interests therein or issued by securities which are secured by real estate issuers which invest in real estate or or interests in real estate. interests therein.) This restriction does not apply to real estate limited partnerships listed on a national stock exchange (e.g., the NYSE). 3. Purchase or sell commodity contracts except 3. Purchase or sell commodities, except that a that each Fund may, to the extent appropriate Fund may to the extent consistent with its under its investment policies, purchase investment objective, invest in securities of publicly traded securities of companies companies that purchase or sell commodities engaging in whole or in part in such or which invest in such programs, and activities, may enter into futures contracts purchase and sell options, forward contracts, and related options, may engage in futures contracts, and options on futures transactions on a when-issued or forward contracts. This limitation does not apply to commitment basis, and may enter into forward foreign currency transactions including currency contracts in accordance with its without limitation forward currency investment policies. contracts. 4. Make loans, except that a Fund may purchase and hold debt instruments (whether such instruments 4. Make loans, except to the extent permitted by are part of a public offering or privately placed), the 1940 Act, the rules and regulations thereunder may enter into repurchase agreements and may and any exemptive relief obtained by the Funds. lend portfolio securities in accordance with its investment policies. 5. Borrow money except as a temporary measure 5. Borrow money or issue senior securities for extraordinary or emergency purposes or except to the extent permitted by the 1940 except in connection with reverse repurchase Act, the rules and regulations thereunder and agreements and mortgage rolls; provided that any exemptive relief obtained by the Funds. the respective Fund will maintain asset coverage of 300% for all borrowings.
C-4
Small Company Fund may not: Its Successor Fund may not: ------------------------------------------------------------------------------------------------------------------------------ 6. Purchase any securities which would cause 6. Purchase any securities which would cause 25% or more of the value of the Fund's total 25% or more of the value of its total assets assets at the time of purchase to be invested at the time of purchase to be invested in the in the securities of one or more issuers securities of one or more issuers conducting conducting their principal business their principal business activities in the activities in the same industry, provided same industry, provided that: (a) there is no that: (a) there is no limitation with respect limitation with respect to obligations issued to (i) instruments issued or guaranteed by or guaranteed by the U.S. Government, any the United States, any state, territory or state or territory of the United States, or possession of the United States, the District any of their agencies, instrumentalities or of Columbia or any of their authorities, political subdivisions, and (b) agencies, instrumentalities or political notwithstanding this limitation or any other subdivisions and (ii) repurchase agreements fundamental investment limitation, assets may secured by the instruments described in be invested in the securities of one or more clause (i); (b) wholly-owned finance management investment copies to the extent companies will be considered to be in the permitted by the 1940 Act, the rules and industries of their parents if their regulations thereunder and any exemptive activities are primarily related to financing relief obtained by the Funds. the activities of the parents; and (c) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry or (iii) with respect to the Small Company Fund, instruments issued by domestic branches of U.S. Banks. Purchase or sell real estate, except that the Fund may purchase securities of issuers which deal in real estate and may purchase securities which are secured by interest in real estate. 7. Purchase any securities on margin (except for 7. No corresponding fundamental investment such short-term credits as are necessary for policy the clearance of purchases and sales of portfolio securities) or sell any securities short (except against the box.) For purposes of this restriction, the deposit or payment by the Fund of initial or maintenance margin connection with futures contracts and related options and options on securities is not considered to be the purchase of a security on margin.
C-5
Small Company Fund may not: Its Successor Fund may not: - ----------------------------------------------------------------------------------------------------------------------------------- 8. Purchase securities of any one issuer 8. Purchase securities (except securities (other than securities issued or guaranteed issued or guaranteed by the U.S. Government, by the U.S. Government, its agencies or its agencies or instrumentalities) of any one instrumentalists or certificates of deposit issuer if, as a result, more than 5% of its for any such securities) if, immediately total assets will be invested in the after such purchase, more than 5% of the securities of such issuer or it would own value of the Fund's total assets would be more than 10% of the voting securities of invested in the securities of such issuer, or such issuer, except that (a) up to 25% of its more than 10% of the issuer's outstanding total assets may be invested without regard voting securities would be owned by the Fund to these limitations and (b) a Fund's assets or the Company; except that up to 25% of the may be invested in the securities of one or value of a Fund's total assets may be more management investment companies to the invested without regard to the foregoing extent permitted by the 1940 Act, the rules limitations. For purposes of this limitation, and regulations thereunder and any exemptive (a) a security is considered to be issued by relief obtained by the Funds. the entity (or entities) whose assets and revenues back the security and (b) a guarantee of a security shall not be deemed to be a security issued by the guarantor when the value of securities issued and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's total assets. Each Fund will maintain asset coverage of 300% or maintain 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 borrowing.
C-6
Cash Reserves, Government Reserves, Municipal Their Successor Funds may not: Reserves and Treasury Reserves may not: - ----------------------------------------------------------------------------------------------------------------------------------- 1. Act as an underwriter of securities of 1. Underwrite any issue of securities within other issuers except as it may be deemed an the meaning of the 1933 Act except when it underwriter in selling a Fund security. might technically be deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, real estate 2. Purchase or sell real estate, except a Fund limited partnership interests, commodities or may purchase securities of issuers which deal commodities contracts. or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. See No. 2 above 3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Make loans, except that (a) a Fund may 4. Make loans, except to the extent permitted by purchase or hold debt instruments in the 1940 Act, the rules and regulations accordance with its investment objective and thereunder and any exemptive relief obtained policies; (b) may enter into repurchase by the Funds. agreement and non-negotiable time deposits, provided that repurchase agreements and non-negotiable time deposits maturing in more than seven days, illiquid restricted securities and other securities which are not readily marketable are not to exceed, in the aggregate, 10% of the Fund's total assets and (c) the Funds (except Municipal Reserves) may engage in securities lending as described in each prospectus and in this SAI.
C-7
Cash Reserves, Government Reserves, Municipal Their Successor Funds may not: Reserves and Treasury Reserves may not: - ------------------------------------------------------------------------------------------------------------------------------------ 5. Borrow money except for temporary or 5. Borrow money or issue senior securities except to emergency purposes and then only in an amount the extent permitted by the 1940 Act, the rules not exceeding one-third of the value of total and regulations thereunder and any exemptive assets. Any borrowing will be done from a bank relief obtained by the Funds. and to the extent that such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at least 300% is required. In the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days thereafter or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%. This borrowing provision is included solely to facilitate the orderly sale of portfolio securities to accommodate heavy redemption requests if they should occur and is not for investment purposes. All borrowings will be repaid before making additional investments and any interest paid on such borrowings will reduce income. 6. Acquire more than 10% of the voting securities of 6. Purchase any securities which would cause 25% any one issuer. 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 management investment copies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds.
C-8
Cash Reserves, Government Reserves, Municipal Their Successor Funds may not: Reserves and Treasury Reserves may not: - ------------------------------------------------------------------------------------------------------------------------------------ 7. Purchase securities of other investment 7. Purchase securities (except securities issued or companies except as permitted by the 1940 Act guaranteed by the U.S. Government, its agencies and the rules and regulations thereunder and may or instrumentalities) of any one issuer if, as a only purchase securities of other money market result, more than 5% of its total assets will be funds. Under these rules and regulations, the invested in the securities of such issuer or it Funds are prohibited from acquiring the securities would own more than 10% of the voting securities of other investment companies if, as a result of of such issuer, except that (a) up to 25% of its such acquisition, the Funds own more than 3% total assets may be invested without regard to these of the total voting stock of the company; securities limitations and (b) a Fund's assets may be invested issued by any one investment company represent in the securities of one or more management investment more than 5% of the Fund's total assets; or companies to the extent permitted by the 1940 Act, the securities (other than treasury stock) issued by all rules and regulations thereunder and any exemptive relief investment companies represent more than 10% obtained by the Funds. of the total assets of the Fund. These investment companies typically incur fees that are separate from those fees incurred directly by the Fund. A Fund's purchase of such investment company securities results in the layering of expenses, such that Shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees. It is the position of the SEC's staff that certain nongovernmental issues of CMOs and REMICS constitute investment companies pursuant to the 1940 Act and either (a) investments in such instruments are subject to the limitations set forth above or (b) the issuers of such instruments have received orders from the SEC exempting such instruments from the definition of investment company. 8. Invest in companies for the purpose of exercising 8. No corresponding fundamental investment policy control. 9. Invest in warrants valued at lower of cost or 9. No corresponding fundamental investment policy market exceeding 5% of the Fund's net assets. Included in that amount but not to exceed 2% of the Fund's net assets, may be warrants not listed on the NYSE or AMEX. 10. Write or purchase puts, calls or combinations 10. No corresponding fundamental investment policy thereof. 11. Invest in interest in oil, gas or other mineral 11. No corresponding fundamental investment policy exploration or development programs and oil, gas or mineral leases.
C-9
Cash Reserves, Government Reserves, Municipal Their Successor Funds may not: Reserves and Treasury Reserves may not: - ------------------------------------------------------------------------------------------------------------------------------------ 12. Purchase or retain securities of an issuer if, to the 12. No corresponding fundamental investment policy knowledge of the NR, an officer, trustee, or partner of NR or adviser of NR owns beneficially more than 1/2 of 1% of the shares or securities of such issuer and all such officers, trustees and partners owning more than 1/2 of 1% of such shares or securities together own more than 5% of such shares or securities. 13. Issue senior securities (as defined in the 1940 13. No corresponding fundamental investment policy Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC. 14. Make short sales of securities, maintain a short 14. No corresponding fundamental investment policy position or purchase securities on margin, except that the Trust may obtain short-term credits as necessary for the clearance of security transactions. 15. Pledge, mortgage or hypothecate assets except to 15. No corresponding fundamental investment policy secure temporary borrowings permitted by (5) above in aggregate amounts not to exceed 10% of total assets taken at current value at the time of the incurrence of such loan, except as permitted with respect to securities lending.
C-10
Money Market Reserves may not: Its Successor Fund may not: - ------------------------------------------------------------------------------------------------------------------------------------ 1. Act as an underwriter of securities within the 1. Underwrite any issue of securities within the meaning of the 1933 Act except to the extent that meaning of the 1933 Act except when it might the purchase of obligations directly from the technically be deemed to be an underwriter either issuer thereof in accordance with the Fund's (a) in connection with the disposition of a investment objective, policies and limitations portfolio security, or (b) in connection with the may be deemed to be underwriting. purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, except that the Fund 2. Purchase or sell real estate, except a Fund may may purchase securities of issuers which deal in purchase securities of issuers which deal or invest real estate and may purchase securities which are in real estate and may purchase securities which secured by interests in real estate. are secured by real estate or interests in real estate. 3. Purchase or sell commodity contracts, or invest in oil, gas or mineral exploration or development 3. Purchase or sell commodities, except that a Fund programs, except that the Fund may, to the extent may to the extent consistent with its investment appropriate to its investment objective, purchase objective, invest in securities of companies that publicly traded securities of companies engaging purchase or sell commodities or which invest in in whole or in part in such activities and may such programs, and purchase and sell options, enter into futures contracts and related 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. Make loans, except that the Fund may purchase 4. Make loans, except to the extent permitted by the and hold debt instruments and enter into 1940 Act, the rules and regulations thereunder repurchase agreements in accordance with its and any exemptive relief obtained by the Funds. investment objective and policies and may lend portfolio securities. 5. Borrow money or issue senior securities, except 5. Borrow money or issue senior securities except to that the Fund may borrow from banks and enter the extent permitted by the 1940 Act, the rules into reverse repurchase agreements for temporary and regulations thereunder and any exemptive purposes in amounts up to one-third of the value relief obtained by the Funds. of the total assets at the time of such borrowing or mortgage, pledge or hypothecate any assets, except in connection with any such borrowing and then in amounts not in excess of one-third of the value of the Fund's total assets at the time of such borrowing. The Fund will not purchase securities while its borrowings (including reverse repurchase agreements) in excess of 5% of its total assets are outstanding. Securities held in escrow or separate accounts in connection with the Fund's investment practices described in this SAI or in the prospectuses are not deemed to be pledged for purposes of this limitation.
C-11 Money Market Reserves may not: Its Successor Fund may not: - -------------------------------------------------------------------------------- 6. Purchase any securities which 6. Purchase any securities which would would cause 25% or more of the value cause 25% or more of the value of the Fund's total assets at the of its total assets at the time of time of purchase to be invested purchase to be invested in the in the securities of one or more securities of one or more issuers issuers conducting their principal conducting their principal business activities in the same business activities in the same industry, provided that (a) there industry, provided that: (a) there is no limitation with respect to: is no limitation with respect to (i) instruments issued or guaranteed obligations issued or guaranteed by by the United States, any state, the U.S. Government, any state or territory or possession of the territory of the United States, or United States, the District of any of their agencies, instrumenta- Columbia or any of their authorities, lities or political subdivisions, agencies, instrumentalities or and (b) notwithstanding this political subdivisions, limitation or any other fundamental (ii) instruments issued by domestic investment limitation, assets may branches of U.S. banks; and be invested in the securities of (iii) repurchase agreements secured one or more management investment by the instruments described in copies to the extent permitted by clauses (i) and (ii); (b) wholly- the 1940 Act, the rules and owned finance companies will be regulations thereunder and any considered to be in the industries exemptive relief obtained by the of their parents if their Funds. activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services; for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. In construing Investment Limitation 10 in accordance with SEC policy, to the extent permitted, U.S. branches of foreign banks will be considered to be U.S. banks where they are subject to the same regulation as U.S. banks. C-12 Money Market Reserves may not: Its Successor Fund may not: - -------------------------------------------------------------------------------- 7. Purchase securities of any one 7. Purchase securities (except securities issuer (other than securities issued or guaranteed by the U.S. issued or guaranteed by the U.S. Government, its agencies or Government, its agencies or instrumentalities) of any one issuer instrumentalities or certificates if, as a result, more than 5% of its of deposit for any such securities) total assets will be invested in the if, immediately after such purchase, securities of such issuer or it would more than 15% of its total assets own more than 10% of the voting would be invested in certificates securities of such issuer, except of deposit or bankers' acceptances that (a) up to 25% of its total of any one bank, or more than 5% assets may be invested without regard of the value of the Fund's total to these limitations and (b) a Fund's assets would be invested in other assets may be invested in the securities of any one bank or in securities of one or more management the securities of any other issuer, investment companies to the extent or more than 10% of the issuer's permitted by the 1940 Act, the rules outstanding voting securities would and regulations thereunder and any be owned by the Fund; except that exemptive relief obtained by the Funds. up to 25% of the value of the Fund's total assets may be invested without regard to the foregoing limitations. For purposes of this limitation, a security is considered to be issued by the entity (or entities) whose assets and revenues back the security. A guarantee of a security shall not be deemed to be a security issued by the guarantor when the value of all securities issued and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's total assets. In accordance with the current regulations of the SEC, the Fund intends to limit its investments in bankers' acceptances, certificates of deposit and other securities of any one bank to not more than 5% of the Fund's total assets at the time of purchase (rather than the 15% limitation set forth above), provided that the Fund may invest up to 25% of its total assets in the securities of any one issuer for a period of up to three business days. This practice, which is not a fundamental policy of the Fund, could be changed only in the event that such regulations of the SEC are amended in the future. 8. Purchase securities of companies 8. No corresponding fundamental for the purpose of exercising investment policy control. 9. Acquire any other investment 9. No corresponding fundamental investment company or investment company policy security except in connection with a merger, consolidation, reorganization or acquisition of assets or where otherwise permitted by the 1940 Act. 10.Write or sell put options, call 10.No corresponding fundamental investment options, straddles, spreads, or policy any combination thereof, except for transactions in options on securities, securities indices, futures contracts and options on futures contracts. C-13 Money Market Reserves may not: Its Successor Fund may not: - -------------------------------------------------------------------------------- 11. Purchase securities on margin, 11. No corresponding fundamental make short sales of securities investment policy or maintain a short position, except that (a) this investment limitation shall not apply to the Fund's transactions in futures contracts and related options, and (b) the Fund may obtain short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities. C-14 California Tax-Exempt Reserves may not: Its Successor Fund may not: - -------------------------------------------------------------------------------- 1. Underwrite any issue of securities 1. Underwrite any issue of within the meaning of the 1933 securities within the meaning Act, except when it might be of the 1933 Act except when technically deemed to be an underwriter it might technically be deemed either (a) in connection with the to be an underwriter either (a) disposition of a portfolio security, in connection with the disposition or (b) in connection with the purchase of a portfolio security, or (b) of securities directly from the issuer in connection with the purchase of thereof in accordance with its securities directly from the investment objective. issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, except a 2. Purchase or sell real estate, Fund may purchase securities of issuers except a Fund may purchase which deal or invest in real estate and securities of issuers which deal may purchase of issuers which deal or or invest in real estate and invest in real estate and may purchase may purchase of issuers which securities which are secured by real deal or invest in real estate estate or interests in real securities and may purchase securities which which are secured by real estate or are secured by real estate or interests in real estate. interests in real securities which are secured by real estate or interests in real estate. 3. Purchase or sell commodities, except 3. Purchase or sell commodities, that a Fund may, to the extent except that a Fund may to the consistent with its investment objective, extent consistent with its invest in securities of companies that investment objective, invest purchase or sell commodities or which in securities of companies invest in such programs, and purchase that purchase or sell and sell options, forward contracts, commodities or which invest in future contracts and options on future such programs, and purchase and contracts. This limitation does not sell options, forward contracts, apply to foreign currency transactions futures contracts, and options including without limitation forward on futures contracts. This currency contracts. limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Make loans, except to the extent 4. Make loans, except to the extent permitted by the 1940 Act. permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 5. Borrow money, issue senior securities 5. Borrow money or issue senior or mortgage, pledge or hypothecate its securities except to the extent assets except to the extent permitted permitted by the 1940 Act, the under the 1940 Act. rules and regulations thereunder and any exemptive relief obtained by the Funds. C-15 California Tax-Exempt Reserves may not: Its Successor Fund may not: - -------------------------------------------------------------------------------- 6. Purchase any securities which would 6. Purchase any securities which cause 25% or more of the value of would cause 25% or more of the its total assets at the time of value of its total assets at the purchase to be invested in the time of purchase to be invested securities of one or more issuers in the securities of one or more conducting their principal business issuers conducting their activities in the same industry, principal business activities provided that (a) there is no in the same industry, provided limitation with respect to that: (a) there is no limitation obligations issued or guaranteed by with respect to obligations the U.S. Government, any state or issued or guaranteed by the U.S. territory of the United States, or Government, any state or any of their agencies, territory of the United States, instrumentalities or political or any of their agencies, subdivisions, and (b) not instrumentalities or political withstanding this limitation or any subdivisions, and (b) other fundamental investment notwithstanding this limitation limitation, assets may be invested or any other fundamental in the securities of one or more investment limitation, assets diversified management investment may be invested in the securities companies to the extent permitted by of one or more management the 1940 Act. Notwithstanding the investment copies to the extent above limitation, there is no permitted by the 1940 Act, the limitation with respect to investments rules and regulations thereunder by any of the Funds in repurchase and any exemptive relief obtained agreements, domestic bank obligations by the Funds. and certain bank obligations considered to be issued by domestic banks purchase to regulations or pronouncements of the Securities and Exchange Commission or its staff. C-16
Emerging Markets Fund may not: Its Successor Fund may not: - --------------------------------------------------------- --------------------------------------------------------- 1. Underwrite any issue of securities within the 1. Underwrite any issue of securities within the meaning of the 1933 Act except when it might meaning of the 1933 Act except when it might technically be deemed to be an underwriter technically be deemed to be an underwriter either (a) in connection with the disposition either (a) in connection with the disposition of a portfolio security, or (b) in connection of a portfolio security, or (b) in connection with the purchase of securities directly from with the purchase of securities directly from the issuer thereof in accordance with its the issuer thereof in accordance with its investment objective. This restriction shall investment objective. This restriction shall not limit the Fund's ability to invest in not limit the Fund's ability to invest in securities issued by other registered securities issued by other registered investment companies. investment companies. 2. Purchase or sell real estate, except a Fund 2. Purchase or sell real estate, except a Fund may purchase securities 2. Purchase or sell may purchase securities of issuers which deal real estate, except a Fund may purchase or invest in real estate and may purchase securities of issuers which deal or invest in securities which are secured by real estate real estate and may purchase of issuers which or interests in real estate. deal or invest in real estate and may purchase securities which are secured by real estate or interests in real securities which are secured by real estate or interests in real estate. estate. 3. Purchase or sell commodities, except that a 3. Purchase or sell commodities, except that a Fund may to the extent consistent with its Fund may to the extent consistent with its investment objective, invest in securities of investment objective, invest in securities of companies that purchase or sell commodities companies that purchase or sell commodities or which invest in such programs, and or which invest in such programs, and purchase and sell options, forward contracts, purchase and sell options, forward contracts, futures contracts, and options on futures futures contracts, and options on futures contracts. This limitation does not apply to contracts. This limitation does not apply to foreign currency transactions including foreign currency transactions including without limitation forward currency without limitation forward currency contracts. contracts. 4. Make loans, except to the extent permitted by 4. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained thereunder and any exemptive relief obtained by the Funds. by the Funds. 5. Borrow money, issue senior securities or 5. Borrow money or issue senior securities mortgage, pledge or hypothecate its assets except to the extent permitted by the 1940 except to the extent permitted by the 1940 Act, the rules and regulations thereunder and Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. any exemptive relief obtained by the Funds.
C-17
Emerging Markets Fund may not: Its Successor Fund may not: - -------------------------------------------------------- -------------------------------------------------------- 6. Purchase any securities which would cause 25% 6. Purchase any securities which would cause 25% or more of the value of its total assets at or more of the value of its total assets at the time of purchase to be invested in the the time of purchase to be invested in the securities of one or more issuers conducting securities of one or more issuers conducting their principal business activities in the their principal business activities in the same industry, provided that: (a) there is no same industry, provided that: (a) there is no limitation with respect to obligations issued limitation with respect to obligations issued or guaranteed by the U.S. Government, any or guaranteed by the U.S. Government, any state or territory of the United States, or state or territory of the United States, or any of their agencies, instrumentalities or any of their agencies, instrumentalities or political subdivisions, and (b) political subdivisions, and (b) notwithstanding this limitation or any other notwithstanding this limitation or any other fundamental investment limitation, assets may fundamental investment limitation, assets may be invested in the securities of one or more be invested in the securities of one or more management investment companies to the extent management investment copies to the extent permitted by the 1940 Act, the rules and permitted by the 1940 Act, the rules and regulations thereunder and any exemptive regulations thereunder and any exemptive relief obtained by the Funds. relief obtained by the Funds. 7. Purchase securities (except securities issued 7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its issuer if, as a result, more than 5% of its total assets will be invested in the total assets will be invested in the securities of such issuer or it would own securities of such issuer or it would own more than 10% of the voting securities of more than 10% of the voting securities of such issuer, except that (a) up to 25% of its such issuer, except that (a) up to 25% of its total assets may be invested without regard total assets may be invested without regard to these limitations and (b) a Fund's assets to these limitations and (b) a Fund's assets may be invested in the securities of one or may be invested in the securities of one or more management investment companies to the more management investment companies to the extent permitted by the 1940 Act. extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds.
C-18
California Municipal Bond Fund may not: The Successor Funds may not: - ----------------------------------------------------------------------------------------------------------------------------------- 1. Underwrite any issue of securities within the 1. Underwrite any issue of securities within the meaning of the 1933 Act except when it might meaning of the 1933 Act except when it might technically be deemed to be an underwriter technically be deemed to be an underwriter either (a) in connection with the disposition either (a) in connection with the disposition of a portfolio security, or (b) in connection of a portfolio security, or (b) in connection with the purchase of securities directly from with the purchase of securities directly from the issuer thereof in accordance with its the issuer thereof in accordance with its investment objective. investment objective. This restriction shall not limit the Fund's ability to invest in 2. Purchase or sell real estate, except a Fund securities issued by other registered may purchase securities of issuers which deal investment companies. or invest in real estate and may purchase securities which are secured by real estate 2. Purchase or sell real estate, except a Fund or interests in real estate. may purchase securities of issuers which deal or invest in real estate and may purchase 3. Purchase or sell commodities, except that a securities which are secured by real estate Fund may to the extent consistent with its or interests in real estate. investment objective, invest in securities of companies that purchase or sell commodities 3. Purchase or sell commodities, except that a or which invest in such programs, and Fund may to the extent consistent with its purchase and sell options, forward contracts, investment objective, invest in securities of futures contracts, and options on futures companies that purchase or sell commodities contracts. This limitation does not apply to or which invest in such programs, and foreign currency transactions including purchase and sell options, forward contracts, without limitation forward currency futures contracts, and options on futures contracts. contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Make loans, except to the extent permitted by 4. Make loans, except to the extent permitted by the 1940 Act. the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 5. Borrow money, issue senior securities or 5. Borrow money or issue senior securities mortgage, pledge or hypothecate its assets except to the extent permitted by the 1940 except to the extent permitted under the 1940 Act, the rules and regulations thereunder and Act. any exemptive relief obtained by the Funds. 6. Purchase any securities which would cause 25% 6. Purchase any securities which would cause 25% or more of the value of its total assets at or more of the value of its total assets at the time of purchase to be invested in the the time of purchase to be invested in the securities of one or more issuers conducting securities of one or more issuers conducting their principal business activities in the their principal business activities in the same industry, provided that: (a) there is no same industry, provided that: (a) there is no limitation with respect to obligations issued limitation with respect to obligations issued or guaranteed by the U.S. Government, any or guaranteed by the U.S. Government, any state or territory of the United States, or state or territory of the United States, or any of their agencies, instrumentalities or any of their agencies, instrumentalities or political subdivisions, and (b) political subdivisions, and (b) notwithstanding this limitation or any other notwithstanding this limitation or any other fundamental investment limitation, assets may fundamental investment limitation, assets may be invested in the securities of one or more be invested in the securities of one or more diversified management investment companies management investment copies to the extent to the extent permitted by the 1940 Act and permitted by the 1940 Act, the rules and the rules and regulations thereunder. regulations thereunder and any exemptive relief obtained by the Funds.
C-19 APPENDIX D FORM OF PROXY CARD [Insert Fund Name Here] Nations Funds 101 South Tryon Street Special Meeting of Shareholders 33rd Floor to be held on March 27, 2002 One Bank of America Plaza Charlotte, North Carolina 28255 The undersigned hereby appoints Richard H. Blank, Jr., Michael Simons and Carolyn Wyse (the "Proxies"), and each of them, attorneys and proxies of the undersigned, each with power of substitution and resubstitution, to attend, vote and act for the undersigned at the Special Meeting of Shareholders of the fund to be held at One Bank of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina 28255, at 10:00 a.m. (Eastern time) on March 27, 2002, and at any adjournment(s) thereof. The Proxies shall cast votes according to the number of shares of the fund which the undersigned may be entitled to vote with respect to the proposal set forth below, in accordance with the specification indicated, if any, and shall have all the powers which the undersigned would possess if personally present. The undersigned hereby revokes any prior proxy to vote at such meeting, and hereby ratifies and confirms all that said Proxies, or any of them, may lawfully do by virtue hereof or thereof. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF THE FUND AND THE PROXY STATEMENT, DATED JANUARY 14, 2002. THIS PROXY IS SOLICITED ON BEHALF OF THE FUND'S BOARD. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, EITHER BY THE ENCLOSED POSTAGE PAID ENVELOPE, OR BY TELEPHONE OR BY INTERNET. To vote by Telephone: 1) Read the Proxy Statement and have the Proxy Ballot below at hand. 2) Call toll-free 1-800-690-6903. 3) Enter the 12-digit control number set forth on the Proxy Ballot and follow the simple instructions. To vote by Internet: 1) Read the Proxy Statement and have the Proxy Ballot below at hand. 2) Go to the website www.proxyvote.com. 3) Enter the 12-digit control number set forth on the Proxy Ballot and follow the simple instructions. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED - -------------------------------------------------------------------------------- [Insert Fund Name Here] THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN ON THE PROPOSAL BELOW. IN THE ABSENCE OF ANY SPECIFICATION, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL. -------- Vote on Proposal 1. A proposed agreement and plan of reorganization dated as of January 1, 2002 that provides for the reorganization of your fund into a corresponding successor fund. FOR AGAINST ABSTAIN |_| |_| |_| In their discretion, the Proxies, and each of them, are authorized to vote upon any other business that may properly come before the meeting, or any adjournment(s) thereof, including any adjournment(s) necessary to obtain requisite quorums and/or approvals. Please sign below exactly as your name(s) appear(s) hereon. Corporate proxies should be signed in full corporate name by an authorized officer. Each joint owner should sign personally. Fiduciaries should give full titles as such. ----------------------- -------- Signature Date ----------------------- -------- Signature (Joint Owners) Date - -------------------------------------------------------------------------------- Nations Reserves Exhibit Index Exhibit No. Description - ----------- ----------- EX-1 Form of Agreement & Plan of Reorganization dc-292108 EX-1 3 dex1.txt NR FORM OF AGREEMENT FORM OF AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this January 1, 2002 by and between the Capitol Mutual Funds (doing business as Nations Reserves) ("Reserves"), a Massachusetts business trust, for itself and on behalf of its Nations Blue Chip Fund, Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Convertible Securities Fund, Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves, Nations California Municipal Bond Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund and Nations Intermediate Bond Fund, and Nations Funds Trust ("Funds Trust"), a Delaware statutory business trust, for itself and on behalf of its Nations Strategic Growth Fund, Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Convertible Securities Fund, Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves, Nations California Municipal Bond Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund and Nations Intermediate Bond Fund. WHEREAS, Reserves and Funds Trust are open-end management investment companies registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the parties desire that the Fund Assets and Liabilities (as defined below) of Reserves's Nations Blue Chip Fund, Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Convertible Securities Fund, Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves, Nations California Municipal Bond Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund and Nations Intermediate Bond Fund (each an "Acquired Fund" and collectively the "Acquired Funds") be conveyed to and, acquired and assumed, respectively, by Funds Trust's Nations Strategic Growth Fund, Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Convertible Securities Fund, Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves, Nations California Municipal Bond Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund and Nations Intermediate Bond Fund (each an "Acquiring Fund" and collectively the "Acquiring Funds") in exchange for shares of equal U.S. dollar value of such Acquiring Fund which shall thereafter promptly be distributed to the shareholders of an Acquired Fund in connection with its liquidation as described in this Agreement and set forth in Schedule A attached hereto (each such acquisition and assumption of an Acquired Fund's Fund Assets and Liabilities by the corresponding Acquiring Fund a "Reorganization" and collectively the "Reorganizations"); and WHEREAS, the parties intend that each Reorganization qualify as a "reorganization," within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that each Acquiring Fund and corresponding Acquired Fund will each be a "party to a reorganization," within the meaning of Section 368(b) of the Code, with respect to each respective Reorganization. NOW, THEREFORE, in accordance with the terms and conditions described herein, the Acquired Funds and Acquiring Funds shall be consolidated as follows: 1. Conveyance of Fund Assets and Liabilities of the Acquired Funds. --------------------------------------------------------------- (a) Except as provided below, at the Effective Time of the Reorganization (as defined in Section 8) all assets of every kind, and all interests, rights, privileges and powers of the Acquired Funds (the "Fund Assets"), subject to all liabilities of the Acquired Funds existing as of the Effective Time of the Reorganization (the "Liabilities"), shall be transferred by each Acquired Fund to each corresponding Acquiring Fund and shall be accepted and assumed by such Acquiring Fund, as more particularly set forth in this Agreement, such that at and after the Effective Time of the Reorganization: (i) all Fund Assets of each Acquired Fund shall become the assets of the corresponding Acquiring Fund; and (ii) all Liabilities of each Acquired Fund shall attach to the corresponding 1 Acquiring Fund, enforceable against each Acquiring Fund to the same extent as if originally incurred by such Acquiring Fund. (b) It is understood and agreed that the Fund Assets shall include all property and assets of any nature whatsoever, including, without limitation, all cash, cash equivalents, securities, claims (whether absolute or contingent, known or unknown, accrued or unaccrued) and receivables (including dividend and interest receivables) owned or exercisable by an Acquired Fund, and any deferred or prepaid expenses shown as an asset on such Acquired Fund's books, that the Liabilities of an Acquired Fund shall include all liabilities, whether known or unknown, accrued or unaccrued, absolute or contingent, in all cases, existing at the Effective Time of the Reorganization. (c) At least fifteen (15) business days prior to the Closing Date (as defined in Section 8), each Acquired Fund will provide to, or cause to be provided to, each corresponding Acquiring Fund, a schedule of its securities, other assets and its known liabilities. It is understood and agreed that such Acquired Fund may sell any of the securities or other assets shown on such schedule prior to the Effective Time of the Reorganization but will not, without the prior approval of each corresponding Acquiring Fund, acquire any additional securities other than securities that such Acquiring Fund is permitted to purchase in accordance with its stated investment objective and policies. At least ten (10) business days prior to the Closing Date, each Acquiring Fund will advise each corresponding Acquired Fund of any investments of such Acquired Fund shown on such schedule that such Acquiring Fund would not be permitted to hold, pursuant to its stated investment objective and policies or otherwise. Each Acquired Fund, if requested by the corresponding Acquiring Fund, will dispose of any such securities prior to the Closing Date to the extent practicable and consistent with applicable legal requirements. In addition, if it is determined that the investment portfolios of an Acquired Fund and its corresponding Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations applicable to the Acquiring Fund, such Acquired Fund, if requested by the corresponding Acquiring Fund, will dispose of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Effective Time of the Reorganization. (d) The Fund Assets shall be transferred and conveyed to the Acquiring Funds on the following basis: (1) In exchange for the transfer of the Fund Assets, each Acquiring Fund shall simultaneously issue to the corresponding Acquired Fund at the Effective Time of the Reorganization full and fractional shares of such Acquiring Fund, as set forth in Schedule A attached hereto, having an aggregate net asset value equal to the net value of the Fund Assets minus Liabilities so conveyed and assumed, all determined in accordance with this Agreement. In this regard, the number of full and fractional shares of the Acquiring Funds delivered to each Acquired Fund shall be determined by dividing the value of the Fund Assets minus Liabilities, computed in the manner and as of the time and date set forth in this Agreement, by the net asset value of one Acquiring Fund share of such designated class, computed in the manner and as of the time and date set forth in this Agreement. (2) The net asset value of shares to be delivered by each Acquiring Fund, and the net value of the Fund Assets minus Liabilities to be conveyed by each Acquired Fund and assumed by the Acquiring Funds, shall, in each case, be determined as of the Valuation Time as defined in Section 3. The net asset value of shares of the Acquiring Funds shall be computed in accordance with its then current valuation procedures. In determining the value of the Fund Assets, each security to be included in the Fund Assets 2 shall be priced in accordance with each Acquiring Fund's then current valuation procedures. 2. Liquidation of Each Acquired Fund. At the Effective Time of the ---------------------------------- Reorganization, each Acquired Fund shall make a liquidating distribution to its shareholders as follows: Shareholders of record of an Acquired Fund shall be credited with full and fractional shares of the respective shares that are issued by the corresponding Acquiring Fund in connection with the Reorganization corresponding to the Acquired Fund shares that are held of record by the shareholder at the Effective Time of the Reorganization. Each such shareholder also shall have the right to receive any unpaid dividends or other distributions which were declared before the Effective Time of the Reorganization with respect to the Acquired Fund shares that are held of record by the shareholder at the Effective Time of the Reorganization, and Funds Trust shall record on its books the ownership of the respective Acquiring Fund shares by such shareholders (the "Transferor Record Holders"). All of the issued and outstanding shares of an Acquired Fund at the Effective Time of the Reorganization shall be redeemed and canceled on the books of Reserves at such time. As soon as reasonably possible after the Effective Time of the Reorganization, Reserves shall wind up the affairs of each Acquired Fund and shall file any final regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2 filings, with respect to each Acquired Fund, and also shall take all other steps as are necessary and proper to effect the termination or declassification of the Acquired Funds in accordance with all applicable laws. Subject to the provisions of this Agreement at an appropriate time as determined by the officers of Reserves, upon the advice of counsel, Reserves will be dissolved and unwound under the laws of the Commonwealth of Massachusetts and de-registered as an investment company under the 1940 Act. 3. Valuation Time. The "Valuation Time" shall be the time as of which --------------- the net asset value of each class of shares of the Acquired Funds and the Acquiring Funds is determined pursuant to their respective valuation procedures on the Closing Date or such earlier or later time as may be mutually agreed to in writing by the parties hereto. 4. Certain Representations, Warranties and Agreements of Reserves on ------------------------------------------------------------------ behalf of the Acquired Funds. Reserves, for itself and, where ----------------------------- appropriate, on behalf of each Acquired Fund, represents and warrants to, and agrees with, Funds Trust, on behalf of each Acquiring Fund as follows, with such representations, warranties and agreements made on behalf of the Acquired Funds on a several (and not joint, or joint and several) basis: (a) Reserves is a business trust, duly established, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. Reserves is registered with the SEC as an open-end management investment company under the 1940 Act, and such registration is in full force and effect. (b) Reserves has the power to own all of its properties and assets and to consummate the transactions contemplated herein, and has all necessary federal, state and local authorizations to carry on its business as now being conducted and to consummate the transactions contemplated by this Agreement. (c) This Agreement has been duly authorized by the Board of Trustees of Reserves on behalf of each Acquired Fund, and has been executed and delivered by duly authorized officers of Reserves, and represents a valid and binding contract, enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium, and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The execution and delivery of this Agreement does not, and, subject to the approval of shareholders referred to in Section 7, the consummation of the transactions contemplated by this Agreement will not, violate the Declaration of Trust or the By-Laws of Reserves, or any material agreement or arrangement to which Reserves is a party or by which it is bound. 3 (d) Each Acquired Fund has elected to qualify and has qualified as a regulated investment company under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, as of and since its first taxable year; each has been a regulated investment company under such Part of the Code at all times since the end of its first taxable year when it so qualified; and each qualifies and shall continue to qualify as a regulated investment company for its taxable year ending upon its liquidation. (e) Reserves has valued, and will continue to value, the portfolio securities and other assets of the Acquired Funds in accordance with applicable legal requirements. (f) The combined proxy statement/prospectus and form of proxy included within Funds Trust's registration statement on Form N-14 (the "N-14 Registration Statement") and the proxy statement and form of proxy included within Reserves's Schedule 14A (the "Proxy Statement"), from their respective effective dates with the SEC through the time of the shareholder meeting(s) referred to in Section 7 and the Effective Time of the Reorganization, insofar as they relate to Reserves, or the Acquired Funds (i) shall comply in all material respects with the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act, the rules and regulations thereunder, and applicable state securities laws, and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. (g) All of the issued and outstanding shares of Reserves's Acquired Funds have been validly issued and are fully paid and non-assessable, and were offered for sale and sold in conformity with the registration requirements of all applicable federal and state securities laws. (h) Reserves shall operate the business of the Acquired Funds in the ordinary course between the date hereof and the Effective Time of the Reorganization, except that Reserves shall complete all measures in respect of the Acquired Funds prior to the Effective Time of the Reorganization to ensure that each Reorganization qualifies as a "reorganization" within the meaning of Section 368(a) of the Code, regardless of whether such measures are in the ordinary course. It is understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and any other dividends and distributions deemed advisable in anticipation of the Reorganizations. Notwithstanding anything herein to the contrary, Reserves shall take all appropriate action necessary in order for Reserves to receive the opinion provided for in Section 9(f). (i) At the Effective Time of the Reorganization, Reserves's Acquired Funds will have good and marketable title to the Fund Assets and full right, power and authority to assign, deliver and otherwise transfer such assets. (j) At the Effective Time of the Reorganization, all federal and other tax returns and reports of the Acquired Funds required by law to have been filed by such time shall have been filed, and all federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best knowledge of management of Reserves, no such return or report shall be currently under audit and no assessment shall have been asserted with respect to such returns or reports. 5. Certain Representations, Warranties and Agreements of Funds Trust ------------------------------------------------------------------ on behalf of the Acquiring Funds. Funds Trust, on behalf of itself --------------------------------- and where appropriate, on behalf of each Acquiring Fund, represents and warrants to, and agrees with, Reserves on behalf of each Acquired Fund as follows, with such representations, warranties and agreements made on behalf of the Acquiring Funds on a several (and not joint, or joint and several) basis: 4 (a) Funds Trust is a statutory business trust duly formed, validly existing and in good standing under the laws of the State of Delaware and is registered with the SEC as an open-end management investment company under the 1940 Act and such registration is in full force and effect. (b) Funds Trust has the power to own all of its properties and assets and to consummate the transactions contemplated herein, and has all necessary federal, state and local authorizations to carry on its business as now being conducted and to consummate the transactions contemplated by this Agreement. (c) This Agreement has been duly authorized by the Board of Trustees of Funds Trust on behalf of each Acquiring Fund, and executed and delivered by duly authorized officers of Funds Trust, and represents a valid and binding contract, enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement will not, violate the Amended and Restated Declaration of Trust of Funds Trust or any material agreement or arrangement to which it is a party or by which it is bound. (d) Each Acquiring Fund has elected to qualify and has qualified as a regulated investment company under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, as of and since its first taxable year; each has been a regulated investment company under such Part of the Code at all times since the end of its first taxable year when it so qualified; and each qualifies and shall continue to qualify as a regulated investment company for its current taxable year. (e) Funds Trust has valued, and will continue to value, the portfolio securities and other assets of the Acquiring Funds in accordance with applicable legal requirements. (f) The N-14 Registration Statement and the Proxy Statement, from their respective effective dates with the SEC through the time of the shareholder meeting(s) referred to in Section 7 and at the Effective Time of the Reorganization, insofar as it relates to Funds Trust, or the Acquiring Funds (i) shall comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act, the rules and regulations thereunder, and state securities laws, and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. (g) The shares of the Acquiring Funds to be issued and delivered to the corresponding Acquired Funds for the account of the shareholders of each Acquired Fund, pursuant to the terms hereof, shall have been duly authorized as of the Effective Time of the Reorganization and, when so issued and delivered, shall be duly and validly issued, fully paid and non-assessable, and no shareholder of the Acquiring Funds shall have any preemptive right of subscription or purchase in respect thereto. (h) All of the issued and outstanding shares of the Acquiring Funds have been validly issued and are fully paid and non-assessable, and were offered for sale and sold in conformity with the registration requirements of all applicable federal and state securities laws. (i) Funds Trust shall operate the business of the Acquiring Funds in the ordinary course between the date hereof and the Effective Time of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and any other dividends and 5 distributions deemed advisable in anticipation of the Reorganizations. Notwithstanding anything herein to the contrary, Funds Trust shall take all appropriate action necessary in order for Funds Trust to receive the opinion provided for in Section 10(d). (j) At the Effective Time of the Reorganization, all federal and other tax returns and reports of the Acquiring Funds required by law to have been filed by such time shall have been filed, and all federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best knowledge of management of Funds Trust, no such return or report shall be currently under audit and no assessment shall have been asserted with respect to such returns or reports. 6. Regulatory Filings. Funds Trust has filed the N-14 Registration ------------------- Statement with the SEC and Reserves has filed the Proxy Statement with the SEC. 7. Shareholder Action. After the effective date of the N-14 ------------------- Registration Statement and the Proxy Statement, Reserves shall hold a meeting(s) of the shareholders of each Acquired Fund for the purpose of considering and voting upon: (a) approval of this Agreement and the Reorganization contemplated hereby; and (b) such other matters as may be determined by the Board of Trustees of Reserves. 8. Closing Date, Effective Time of the Reorganization. The "Closing --------------------------------------------------- Date" shall be May 10, 2002 for all Funds, except Nations Cash Reserves, which shall be May 17, 2002, or such earlier or later dates as may be mutually agreed in writing by the parties hereto. Delivery of the Fund Assets and each class of shares of the Acquiring Fund to be issued pursuant to Section 1 and the liquidation of the Acquired Funds pursuant to Section 2 shall occur on the day following the Closing Date, whether or not such day is a business day, or on such other date, and at such place and time, as may be mutually agreed in writing, by the parties hereto. The date and time at which such actions are taken are referred to herein as the "Effective Time of the Reorganization." To the extent any Fund Assets are, for any reason, not transferred at the Effective Time of the Reorganization, Reserves shall cause such Fund Assets to be transferred in accordance with this Agreement at the earliest practicable date thereafter. 9. Conditions to Funds Trust's Obligations on Behalf of the Acquiring ------------------------------------------------------------------ Funds. The obligations of Funds Trust hereunder shall be subject ------ to the following conditions precedent: (a) This Agreement and the Reorganization shall have been approved by the Board of Trustees of Reserves and by a requisite vote of the shareholders of the Acquired Funds in the manner required by Reserves's Declaration of Trust, By-Laws, applicable law and this Agreement. (b) All representations and warranties of Reserves made in this Agreement shall be true and correct in all material respects as if made at and as of the Valuation Time and the Effective Time of the Reorganization. (c) Reserves shall have delivered to Funds Trust a statement of assets and liabilities of each Acquired Fund, showing the tax basis of such assets for federal income tax purposes by lot and the holding periods of such assets, as of the Valuation Time. (d) Reserves shall have duly executed and delivered to Funds Trust such bills of sale, assignments, certificates and other instruments of transfer ("Transfer Documents") as Funds Trust may deem necessary or desirable to transfer all of the Acquired Funds' rights, title and interest in and to the Fund Assets. 6 (e) Reserves shall have delivered a certificate executed in its name executed by an appropriate officer, in a form reasonably satisfactory to Funds Trust and dated as of the Closing Date, to the effect that the representations and warranties of Reserves on behalf of each Acquired Fund made in this Agreement are true and correct at and as of the Valuation Time and that, to the best of its knowledge, the Fund Assets include only assets which the corresponding Acquiring Fund may properly acquire under its investment objectives, policies and limitations and may otherwise be lawfully acquired by such Acquiring Fund. (f) Funds Trust shall have received an opinion of Morrison & Foerster LLP, upon which each Acquiring Fund and its shareholders may rely, based upon representations made in certificates provided by Reserves, and/or its affiliates and/or principal shareholders of the Acquired Funds to Morrison & Foerster LLP, addressed to Funds Trust in a form reasonably satisfactory to it, and dated as of the Closing Date, substantially to the effect that, for federal income tax purposes, each Reorganization will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and each Acquired Fund and each Acquiring Fund will each be a "party to a reorganization," within the meaning of Section 368(b) of the Code, with respect to each Reorganization. (g) The N-14 Registration Statement and the Proxy Statement shall have become effective and no stop order suspending the effectiveness shall have been instituted, or to the knowledge of Reserves, contemplated by the SEC. (h) No action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. (i) The SEC shall not have issued any unfavorable advisory report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act. (j) Reserves on behalf of each Acquired Fund shall have performed and complied in all material respects with each of its agreements and covenants required by this Agreement to be performed or complied with by it prior to or at the Valuation Time and the Effective Time of the Reorganization. (k) Reserves shall have received a duly executed instrument whereby each Acquiring Fund assumes all of the liabilities of Reserves's corresponding Acquired Fund. (l) Except to the extent prohibited by Rule 19b-1 under the 1940 Act, prior to the Valuation Time, each Acquired Fund shall have declared a dividend or dividends, with a record date and ex-dividend date prior to the Valuation Time, which, together with all previous dividends, shall have the effect of distributing to its shareholders all of its previously undistributed (i) "investment company taxable income" within the meaning of Section 852(b) of the Code (determined without regarding Section 852(b)(2)(D) of the Code), (ii) excess of (A) the amount specified in Section 852(a)(1)(B)(i) of the Code over (B) the amount specified in Section 852(a)(1)(B)(ii) of the Code, and (iii) "net capital gain" (within the meaning of Section 1222(11) of the Code), if any, realized in taxable periods or years ending on or before Effective Time. 10. Conditions to Reserves's Obligations on behalf of the Acquired ------------------------------------------------------------------ Funds. The obligations of Reserves hereunder shall be subject to ------ the following conditions precedent: (a) This Agreement and the Reorganization shall have been approved by the Board of Trustees of Funds Trust on behalf of each Acquiring Fund. 7 (b) All representations and warranties of Funds Trust made in this Agreement shall be true and correct in all material respects as if made at and as of the Valuation Time and the Effective Time of the Reorganization. (c) Funds Trust shall have delivered a certificate executed in its name by an appropriate officer, in a form reasonably satisfactory to Reserves and dated as of the Closing Date, to the effect that the representations and warranties of each Acquiring Fund made in this Agreement are true and correct at and as of the Valuation Time. (d) Reserves shall have received an opinion of Morrison & Foerster LLP, upon which each Acquired Fund and its shareholders may rely, based upon representations made in certificates provided by Funds Trust, and/or its affiliates and/or principal shareholders of the Acquiring Funds to Morrison & Foerster LLP, addressed to Reserves in a form reasonably satisfactory to it, and dated as of the Closing Date, substantially to the effect that, for federal income tax purposes, the Reorganization will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and the Acquired Funds and the Acquiring Funds will each be a "party to a reorganization," within the meaning of Section 368(b) of the Code, with respect to each Reorganization. (e) The N-14 Registration Statement and the Proxy Statement shall have become effective and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of Funds Trust, contemplated by the SEC. (f) No action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit or obtain damages or other relief in connection with this Agreement or the transactions contemplated herein. (g) The SEC shall not have issued any unfavorable advisory report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act. (h) Funds Trust on behalf of each Acquiring Fund shall have performed and complied in all material respects with each of its agreements and covenants required by this Agreement to be performed or complied with by it prior to or at the Valuation Time and the Effective Time of the Reorganization. 11. Tax Matters ----------- (a) Reserves and Funds Trust hereby represent and warrant and that each shall use its best efforts to cause the Reorganization to qualify, and will not (whether before or after consummation of the Reorganization) take any actions that could prevent the Reorganization from qualifying, as a "reorganization" under the provisions of Section 368 of the Code. (b) Except where otherwise required by law, the parties shall not take a position on any tax returns inconsistent with the treatment of the Reorganization for tax purposes as a "reorganization," within the meaning of Section 368(a) of the Code and each Acquiring Fund and each Acquired Fund will comply with the record keeping and information filing requirements of Section 1.368-3 of the Treasury Regulation in accordance therewith. 12. Survival of Representations and Warranties. The representations ------------------------------------------- and warranties of Funds Trust on behalf of each Acquiring Fund and Reserves on behalf of each Acquired Fund set forth in this Agreement shall survive the delivery of the Fund Assets to such Acquiring Fund and the issuance of the shares of each Acquiring Fund at the Effective Time of the Reorganization to the corresponding Acquired Fund shareholders. 8 13. Termination of Agreement. This Agreement may be terminated by a ------------------------- party at or, in the case of Subsection 13(c), below, at any time prior to, the Effective Time of the Reorganization by a vote of a majority of its Board members as provided below: (a) By Funds Trust on behalf of its Acquiring Funds if the conditions set forth in Section 9 are not satisfied as specified in said Section; (b) By Reserves on behalf of its Acquired Funds if the conditions set forth in Section 10 are not satisfied as specified in said Section; (c) By mutual written consent of Funds Trust and Reserves. 14. Governing Law. This Agreement and the transactions contemplated -------------- hereby shall be governed, construed and enforced in accordance with the laws of the State of Delaware, except to the extent preempted by federal law. 15. Brokerage Fees and Expenses. --------------------------- (a) Funds Trust represents and warrants that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. (b) The Acquiring Funds will be responsible for the expenses related to entering into and carrying out the provisions of this Agreement, whether or not the transactions contemplated hereby are consummated. To the extent that such expenses exceed contractual total operating expense ratio caps in place for any such Acquiring Fund, Banc of America Advisors, LLC or any of its affiliates will bear such excess expenses. 16. Amendments ---------- This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of Reserves, acting on behalf of the Acquired Funds or Funds Trust, acting on behalf of the Acquiring Funds; provided, however, that following the meeting of the shareholders of an Acquired Fund, no such amendment may have the effect of changing the provisions for determining the number of shares of the Acquiring Funds to be issued to the Transferor Record Holders under this Agreement to the detriment of such Transferor Record Holders, or otherwise materially and adversely affecting an Acquired Fund, without such Acquired Fund obtaining its shareholders' further approval: (a) At any time prior to or (to the fullest extent permitted by law) after approval of this Agreement by the shareholders of an Acquired Fund, Reserves on behalf of an Acquired Fund, may waive any breach by Funds Trust, on behalf of an Acquiring Fund, or the failure to satisfy any of the conditions to its obligations (such waiver to be in writing and signed by an officer of such registered investment companies); (b) At any time prior to or (to the fullest extent permitted by law) after approval of this Agreement by the shareholders of an Acquired Fund, Funds Trust, on behalf of an Acquiring Fund, may waive any breach by Reserves on behalf of an Acquired Fund, or the failure to satisfy any of the conditions to either of their obligations (such waiver to be in writing and signed by an officer of such registered investment companies). 17. Miscellaneous ------------- The Reorganization of an Acquired Fund into a corresponding Acquiring Fund (including the representations and warranties and conditions precedent made or required to occur in 9 connection therewith) shall not be conditioned on any other Reorganization contemplated either under this Agreement or any other agreement and plan of reorganization. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers designated below as of the date first written above. THE CAPITOL MUTUAL FUNDS (doing business as Nations Reserves) On behalf of the Acquired Funds identified on Schedule A By:____________________________________________ Richard H. Blank, Jr. Secretary and Treasurer NATIONS FUNDS TRUST On behalf of the Acquiring Funds identified on Schedule A By:____________________________________________ Richard H. Blank, Jr. Secretary and Treasurer 11
SCHEDULE A ---------- SHAREHOLDERS OWNING SHARES OF THE FOLLOWING WOULD RECEIVE SHARES OF THE FOLLOWING ACQUIRING FUND ACQUIRED FUND AND CLASSES OF RESERVES: ACQUIRING FUNDAND CLASSES OF FUNDS TRUST Nations Blue Chip Fund -> Nations Strategic Growth Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Government Reserves -> Nations Government Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Cash Reserves -> Nations Cash Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Treasury Reserves -> Nations Treasury Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares
12
SHAREHOLDERS OWNING SHARES OF THE FOLLOWING WOULD RECEIVE SHARES OF THE FOLLOWING ACQUIRED FUND AND CLASSES OF RESERVES: ACQUIRING FUND AND CLASSES OF FUNDS TRUST: Nations Municipal Reserves -> Nations Municipal Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Money Market Reserves -> Nations Money Market Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations California Tax-Exempt Reserves -> Nations California Tax-Exempt Reserves Capital Class Shares Capital Class Shares Liquidity Class Shares Liquidity Class Shares Adviser Class Shares Adviser Class Shares Market Class Shares Market Class Shares Daily Class Shares Daily Class Shares Service Class Shares Service Class Shares Investor Class Shares Investor Class Shares Trust Class Shares Trust Class Shares Institutional Class Shares Institutional Class Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations California Municipal Bond Fund -> Nations California Municipal Bond Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Emerging Markets Fund -> Nations Emerging Markets Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations International Value Fund -> Nations International Value Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares
13
SHAREHOLDERS OWNING SHARES OF THE FOLLOWING WOULD RECEIVE SHARES OF THE FOLLOWING ACQUIRED FUND AND CLASSES OF RESERVES: ACQUIRING FUND AND CLASSES OF FUNDS TRUST: Nations International Equity Fund -> Nations International Equity Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Intermediate Bond Fund -> Nations Intermediate Bond Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares Nations Bond Fund -> Nations Bond Fund Primary A Shares Primary A Shares Investor A Shares Investor A Shares Investor B Shares Investor B Shares Investor C Shares Investor C Shares
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