It was growth of its mutual funds family, not legal complications, that caused NationsBank Corp. to drop the distributor of its $10 billion Nations Funds.

That, at least, is the word from Funds Distributor, the dropped company. A broke-dealer unit of First Data Corp., it was split off from Boston Co. in May when that company was acquired by Melon Bank. The fund administration part of the business - writing printing prospectuses, administrative services - stayed with Boston Co.

Betsy Connolly, president of Boston-based Funds Distributor, disputed a widely held assumption that legal difficulties related to working with a bank-owned broker-dealer drove NationsBank's decision to switch in September to Stephens Inc. of Little Rock. Ark.

Few people in the business seem to realize that Mellon didn't buy the brokerage.

"What really happened was that Nations wanted to really step up their distribution effort's Ms. Connolly said. "They could do it more effectively with Stephens because they had other business relationships with them."

She added that Funds Distributor's specialty is serving smaller bank clients. "Chances are we're not going to be an active distributor for a lot of huge bank clients." Ms.Connolly said. "In the normal process of bank funds growth, the bank looks to get more control over the marketing itself."

NationsBank's $11 billion family ranked as the third-largest bank fund family at the end of the third quarter, according to data compiled for American Banker by Lipper Analytical Services.

Mark Williamson, division head of mutual funds for NationsBank, declined to comment on the switch of distributors.

The timing of NationBank's move fueled talk that it tied to Mellon's acquisition of Boston Co. NationsBank dropped Funds Distributor on Sept. 1, just four months after the acquisition.

In an unusual move, the 10 wholesalers and telephone sales representatives who serviced the NationsBank account for Funds Distributors are moving over to Stephens. That will help Funds Distributors, because it will lower overhead on a segment of the business that was not making money, Ms. Connolly said.

|We Are Committed to This Business'

Ms.Connolly said that her company and Boston Co., with which it maintains a kind of partnership, will remain very much in the business even though the loss of NationsBank cuts in half the $21 billion of assets that Funds Distributor had serviced.

"I want people to realize we are committed to this business," she said. "We want to make it clear to our clients they will be serviced the same way as they were when we were part of the Boston Co."

To illustrate that commitment, Funds Distributor hired a sales manager, Lynne Johnson-Owens, formerly a regional vice president for Bay Brokerages in Boston. She will coordinate the relationship with clients such as First Security Corp. in Salt Lake City, Glenmede Trust in Philadelphia, and Harris Trust and Savings Bank in Chicago.

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