As filed with the Securities and Exchange Commission
on July 28, 2000
Registration No. 333-09703; 811-07745
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 11 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 12 [X]
(Check appropriate box or boxes)
-----------------------
NATIONS LIFEGOAL FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
One NationsBank Plaza
33rd Floor
Charlotte, North Carolina 28255
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 626-2275
c/o The Corporation Trust Company
32 South Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis & Frankel
Morrison & Foerster LLP 919 3rd Avenue
2000 Pennsylvania Ave., N.W. New York, New York 10022
Suite 5500
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [ ] on (date) pursuant
to Rule 485(b), or to Rule 485(b), or
[ ] 60 days after filing pursuant [ ] on (date) pursuant
to Rule 485(a), or to Rule 485(a).
[ ] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
----------------
The Registrant is filing this Post-Effective Amendment No. 11 to the
Nations LifeGoal Funds, Inc. Registration Statement for the purpose of filing
updated financial information and other non-material changes.
<PAGE>
NATIONS LIFEGOAL FUNDS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
-------- ----------
<S> <C>
1. Front and Back Cover Pages ................................. Front and Back Cover Pages
2. Risk/Return Summary: Investments, Risks
and Performance............................................. About this Prospectus
3. Risk/Return Summary: Fee Tables............................. About the Funds; Financial Highlights
4. Investment Objectives, Principal Investment
Strategies and Related Risks................................ About the Funds;
Other Important Information
5. Management's Discussion of Fund
Performance................................................. About the Funds
6. Management, Organization, and Capital Structure............. What's Inside; About the
Funds; How the Funds are Managed; About
your Investment
7. Shareholder Information..................................... About the Funds; About your
Investment
8. Distribution Arrangements................................... Information for Investors
9. Financial Highlights Information............................ Financial Highlights;
About the Funds
Part B
Item No.
--------
10. Cover Page and Table of Contents............................ Cover Page and Table of Contents
11. Fund History................................................ Introduction
12. Description of the Fund and Its Investments
and Risks................................................... Additional Information on
Portfolio Investments
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13. Management of the Funds..................................... Trustees and Officers;
Investment Advisory, Administration,
Custody, Transfer Agency, Shareholder
Servicing and Distribution Agreements
14. Control Persons and Principal
Holders of Securities....................................... Not Applicable
15. Investment Advisory and Other Services...................... Investment Advisory,
Administration, Custody, Transfer Agency,
Shareholder Servicing And Distribution
Agreements
16. Brokerage Allocation and Other Practices.................... Portfolio Transactions and
Brokerage--General Brokerage Policy
17. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Custody, Transfer
Agency, Shareholder Servicing And
Distribution Agreements
18. Purchase, Redemption and Pricing
of Shares................................................... Net Asset Value -- Purchases
And Redemptions; Distributor
19. Taxation of the Fund........................................ Additional Information Concerning
Taxes
20. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency
Shareholder Servicing And Distribution
Agreements; Distributor
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
21. Calculation of Performance Data............................. Additional Information on
Performance
22. Financial Statements........................................ Independent Accountant and
Reports
Part C
Item No. Other Information
-------- -----------------
Information required to be included in Part C
is set forth under the appropriate Item, so
numbered, in Part C of this Document
</TABLE>
<PAGE>
[GRAPHIC]
LifeGoal Portfolios
Prospectus -- Primary B Shares
August 1, 2000
LifeGoal Growth Portfolio
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
--------------------
Not FDIC Insured
--------------------
May Lose Value
--------------------
No Bank Guarantee
--------------------
[Nations Funds Logo]
<PAGE>
An overview of the Portfolios
--------------------------------------------------------------------------------
[GRAPHIC]
Terms used in this prospectus
In this prospectus, we, us and our refer to the Nations Funds
family (Nations Funds or Nations Funds Family). Some other
important terms we've used may be new to you. These are printed in
italics where they first appear in a section and are described in
Terms used in this prospectus.
[GRAPHIC]
You'll find Terms used in this prospectus on page 37.
Your investment in a Portfolio is not a bank deposit and is not
insured or guaranteed by Bank of America, N. A. (Bank of America),
the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Your investment may lose money.
Affiliates of Bank of America are paid for the services they
provide to the Portfolios and the underlying Funds.
This booklet, which is called a prospectus, tells you about Nations Funds
LifeGoal Portfolios. Please read it carefully because it contains information
that's designed to help you make informed investment decisions.
Unlike traditional mutual funds, which invest in individual securities, the
Portfolios invest in a mix of Nations Funds Domestic Stock, International
Stock, Government & Corporate Bond and Money Market Funds using an asset
allocation approach. This kind of mutual fund is sometimes called a "fund of
funds."
About asset allocation
Asset allocation is the process of creating a diversified portfolio by
investing in different asset classes -- for example, equity securities, fixed
income securities and money market instruments -- in varying proportions.
The mix of asset classes and how much is invested in each may be the most
important factor in how a Portfolio performs and the amount of risk involved.
Each asset class, and market segments within a class, like large, mid- and
small capitalization stocks, has different return and risk characteristics, and
reacts in different ways to changes in the economy. An investment approach that
combines asset classes and market segments may help to reduce overall Portfolio
volatility.
About the Portfolios
Each Portfolio has its own asset allocation strategy, which gives it
distinctive risk/return characteristics. The performance of each Portfolio
depends on many factors, including its allocation strategy and the performance
of the Nations Funds it invests in. In general, the more a LifeGoal Portfolio
allocates to Domestic Stock and International Stock Funds, the greater the
potential return and the greater the risk of a decline in share price. The more
a LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the
greater the potential for price stability and the lower the potential return.
There's always a risk, however, that you'll lose money or you may not earn as
much as you expect.
LifeGoal Growth Portfolio focuses on long-term growth by normally allocating
all of its assets to a mix of Funds that invest primarily in equity securities.
Equities have the potential to provide higher returns than many other kinds of
investments, but they also tend to have the highest risk.
LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally
allocating its assets to a balanced mix of Funds that invest in equity and
fixed income securities. Fixed income securities have the potential to increase
in value, because, when interest rates fall, the value of these securities
tends to rise. When interest rates rise, however, the value of these securities
tends to fall. Other things can also affect the value of fixed income
securities.
2
<PAGE>
LifeGoal Income and Growth Portfolio focuses on current income and modest
growth. It normally allocates most of its assets to Funds that invest in fixed
income securities, but may also allocate some assets to Funds that invest in
equity securities. Over time, the return on this Portfolio may be lower than
the return on the other Portfolios.
Is LifeGoal right for you?
When you're choosing a Portfolio to invest in, you should consider things like
your investment goals, how much risk you can accept and how long you're
planning to hold your investment.
The LifeGoal Portfolios may be suitable for you if:
o you have longer-term investment goals
o they're part of a balanced portfolio
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with equity and fixed income securities
o you have short-term investment goals
o you're looking for a regular stream of income
You'll find a discussion of each Portfolio's principal investments, strategies
and risks in the Portfolio descriptions that start on page 5.
For more information
If you have any questions about the Portfolios, please call us at
1.800.321.7854 or contact your investment professional.
You'll find more information about the Portfolios in the Statement of
Additional Information (SAI). The SAI includes more detailed information about
each Portfolio's investments, policies, performance and management, among other
things. Please turn to the back cover to find out how you can get a copy.
3
<PAGE>
What's inside
--------------------------------------------------------------------------------
[GRAPHIC]
Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to
each of the Portfolios. BAAI is responsible for the overall
management and supervision of the investment management of each
Portfolio. BAAI and Nations Funds have engaged a sub-adviser --
Banc of America Capital Management, Inc. (BACAP), which is
responsible for the day-to-day investment decisions for each of the
Portfolios.
[GRAPHIC]
You'll find more about BAAI and BACAP starting on page 23.
[GRAPHIC]
About the Portfolios
<TABLE>
<CAPTION>
<S> <C>
LifeGoal Growth Portfolio 5
Sub-adviser: BACAP
----------------------------------------------------------
LifeGoal Balanced Growth Portfolio 9
Sub-adviser: BACAP
----------------------------------------------------------
LifeGoal Income and Growth Portfolio 14
Sub-adviser: BACAP
----------------------------------------------------------
About the Nations Funds 19
----------------------------------------------------------
Other important information 22
----------------------------------------------------------
How the Portfolios are managed 23
[GRAPHIC]
About your investment
Information for investors
Buying, selling and exchanging shares 29
How selling and servicing agents are paid 32
Distributions and taxes 33
----------------------------------------------------------
Financial highlights 35
----------------------------------------------------------
Terms used in this prospectus 37
----------------------------------------------------------
Where to find more information back cover
</TABLE>
4
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the Portfolio
invests, including their objectives and strategies, in About the
Nations Funds and in the SAI.
LifeGoal Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks capital appreciation through exposure to a variety
of equity market segments.
[GRAPHIC]
Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares of
Nations Funds Domestic Stock and International Stock Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations
set for the Portfolio. It bases its allocations on the Portfolio's
investment objective, historical returns for each asset class and on
its outlook for the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well
as the expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at
least monthly, and may change these allocations when it believes it's
appropriate to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target
allocation, the team may allocate money coming into the Portfolio to
the other Fund categories
o if there are fewer assets in a Fund category than in the target
allocation, it may allocate money coming into the Portfolio to that
Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
5
<PAGE>
[GRAPHIC]
You'll find more about other risks of investing in this Portfolio
starting on page 22 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please call
us at 1.800.321.7854 for a copy.
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio Target allocation for each
can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 40-75%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 15-35%
Nations Small Company Fund
International stock funds 10-30%
Nations International Value Fund
Nations International Equity Fund
</TABLE>
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
Risks and other things to consider
LifeGoal Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
6
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year* The bar chart
shows you how the performance of the Portfolio's Primary B Shares has
varied from year to year. These returns do not reflect deductions of
sales charges or account fees, and would be lower if they did.
[BAR CHART APPEARS HERE]
1997 1998 1999
8.73% 10.17% 25.31%
*Year-to-date return as of June 30, 2000: 6.32%
Best and worst quarterly returns during this period
<TABLE>
<CAPTION>
<S> <C>
Best: 4th quarter 1998: 23.37%
Worst: 3rd quarter 1998: -16.68%
</TABLE>
Average annual total return as of December 31, 1999 The table shows the
Portfolio's average annual total return for each period, compared with
the S&P 500, an unmanaged index of 500 widely held common stocks,
weighted by market capitalization. The index is not available for
investment.
<TABLE>
<CAPTION>
Since
1 year inception*
<S> <C> <C>
Primary B Shares 25.31% 13.71%
S&P 500 21.04% 23.27%
</TABLE>
*The inception date of Primary B Shares is September 19, 1997. The
return for the index shown is from inception of Primary B Shares.
7
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary B Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the Portfolio's assets)
Management fees 0.25%
Shareholder administration fees(1) 0.60%
----
Total annual Portfolio operating expenses 0.85%
====
</TABLE>
(1)Shareholder administration fees of 0.10% are voluntarily waived on
Primary B Shares; however, there is no guarantee that these waivers
will continue for any specified period of time. This waiver is not
reflected in the table above.
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.99% and
1.18% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on
the target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of
those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the
table above
o the Portfolio's indirect expenses remain at the average of the range
as shown above for the 1 year example, excluding any fee waivers
and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary B Shares $196 $612 $1,054 $2,283
</TABLE>
8
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the Portfolio
invests, including their objectives and strategies, in About the
Nations Funds and in the SAI.
LifeGoal Balanced Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks total return through a balanced portfolio of equity
and fixed income securities.
[GRAPHIC]
Investment strategies
The Portfolio normally invests all of its assets in Primary A Shares of
a balanced mix of Nations Funds Domestic Stock and International Stock
and Government & Corporate Bond Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations
set for the Portfolio. It bases its allocations on the Portfolio's
investment objective, historical returns for each asset class and on
its outlook for the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well
as the expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at
least monthly, and may change these allocations when it believes it's
appropriate to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target
allocation, the team may allocate money coming into the Portfolio to
the other Fund categories
o if there are fewer assets in a Fund category than in the target
allocation, it may allocate money coming into the Portfolio to that
Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
9
<PAGE>
[GRAPHIC]
You'll find more about other risks of investing in this Portfolio
starting on page 22 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please call
us at 1.800.321.7854 for a copy.
<TABLE>
<CAPTION>
LifeGoal Balanced Growth Portfolio Target allocation for each
can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 20-40%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 10-20%
Nations Small Company Fund
International stock funds 5-15%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 40-60%
Nations Bond Fund
Nations Strategic Income Fund
</TABLE>
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
Risks and other things to consider
LifeGoal Balanced Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
10
<PAGE>
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income
securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value
when interest rates rise than fixed income securities with shorter
terms.
o Credit risk - A Fund that invests in fixed income securities could
lose money if the issuer of a fixed income security is unable to pay
interest or repay principal when it's due. Credit risk usually applies
to most fixed income securities, but generally is not a factor for
U.S. government obligations. Fixed income securities with the lowest
investment grade rating or that aren't investment grade are more
speculative in nature than securities with higher ratings, and they
tend to be more sensitive to credit risk, particularly during a
downturn in the economy.
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year* The bar chart
shows you how the performance of the Portfolio's Primary B Shares has
varied from year to year. These returns do not reflect deductions of
sales charges or account fees, and would be lower if they did.
[BAR CHART APPEARS HERE]
1998 1999
11.27% 14.03%
*Year-to-date return as of June 30, 2000: 3.96%
Best and worst quarterly returns during this period
<TABLE>
<CAPTION>
<S> <C>
Best: 4th quarter 1998: 12.22%
Worst: 3rd quarter 1998: -9.02%
</TABLE>
11
<PAGE>
Average annual total return as of December 31, 1999 The table shows the
Portfolio's average annual total return for each period, compared with
the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an
unmanaged index of 500 widely held common stocks, weighted by market
capitalization. The Lehman Aggregate Bond Index is an index of fixed
income securities issued by the U.S. government and its agencies, and by
corporations. These indices are not available for investment.
<TABLE>
<CAPTION>
1 year Since inception*
<S> <C> <C>
Primary B Shares 14.03% 11.05%
S&P 500 21.04% 21.28%
Lehman Aggregate Bond Index -0.83% 4.66%
</TABLE>
*The inception date of Primary B Shares is August 4, 1997. The returns
for the indices shown are from inception of Primary B Shares.
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary B Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the Portfolio's assets)
Management fees 0.25%
Shareholder administration fees(1) 0.60%
----
Total annual Portfolio operating expenses 0.85%
====
</TABLE>
(1)Shareholder administration fees of 0.10% are voluntarily waived on
Primary B Shares; however, there is no guarantee that these waivers
will continue for any specified period of time. This waiver is not
reflected in the table above.
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.77% and
1.08% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire in July 31, 2001), and is
based on:
o the amount the Portfolio expects to invest in each Fund, based on
the target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
12
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of
those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown above
o the Portfolio's indirect expenses remain at the average of the range
as shown above for the 1 year example, excluding any fee waivers
and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary B Shares $181 $564 $973 $2,114
</TABLE>
13
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the Portfolio
invests, including their objectives and strategies, in About the
Nations Funds and in the SAI.
LifeGoal Income and Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks current income and modest growth to protect against
inflation and to preserve purchasing power.
[GRAPHIC]
Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares of
Nations Funds Government & Corporate Bond Funds, but may also invest in
Nations Funds Domestic Stock and International Stock Funds, and Nations
Funds Money Market Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target
allocations set for the Portfolio. It bases its allocations on the
Portfolio's investment objective, historical returns for each asset
class and on its outlook for the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well
as the expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at
least monthly, and may change these allocations when it believes
it's appropriate to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target
allocation, the team may allocate money coming into the Portfolio to
the other Fund categories
o if there are fewer assets in a Fund category than in the target
allocation, it may allocate money coming into the Portfolio to that
Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
14
<PAGE>
[GRAPHIC]
You'll find more about other risks of investing in this Portfolio
starting on page 22 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please call
us at 1.800.321.7854 for a copy.
<TABLE>
<CAPTION>
LifeGoal Income and Growth Target allocation for each
can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 10-30%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 0-10%
Nations Small Company Fund
International stock funds 0-10%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 50-90%
Nations Short-Term Income Fund
Nations Bond Fund
Nations Strategic Income Fund
Money market funds 0-20%
Nations Prime Fund
</TABLE>
LifeGoal Income and Growth's target allocation for total investments in
domestic stock and international stock funds is 30%. The team can
substitute or add other Funds to this list at any time, including Funds
introduced after the date of this prospectus.
[GRAPHIC]
Risks and other things to consider
LifeGoal Income and Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
15
<PAGE>
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income
securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value
when interest rates rise than fixed income securities with shorter
terms.
o Credit risk - A Fund that invests in fixed income securities could
lose money if the issuer of a fixed income security is unable to pay
interest or repay principal when it's due. Credit risk usually applies
to most fixed income securities, but generally is not a factor for
U.S. government obligations.
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
16
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only to
the extent that the classes do not have the same expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year* The bar chart
shows you how the performance of the Portfolio's Investor A Shares has
varied from year to year. These returns do not reflect deductions of
sales charges or account fees, and would be lower if they did.
[BAR CHART APPEARS HERE]
1997 1998 1999
8.50% 10.25% 6.15%
*Year-to-date return as of June 30, 2000: 1.77%
Best and worst quarterly returns during this period
<TABLE>
<CAPTION>
<S> <C>
Best: 4th quarter 1998: 6.25%
Worst: 3rd quarter 1998: -2.38%
</TABLE>
Average annual total return as of December 31, 1999 The table shows the
Portfolio's average annual total return for each period, compared with
the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an
unmanaged index of 500 widely held common stocks, weighted by market
capitalization. The Lehman Aggregate Bond Index is an index of fixed
income securities issued by the U.S. government and its agencies, and by
corporations. These indices are not available for investment.
<TABLE>
<CAPTION>
Since
1 year inception*
<S> <C> <C>
Investor A Shares 6.15% 8.36%
S&P 500 21.04% 28.31%
Lehman Aggregate Bond Index -0.83% 6.24%
</TABLE>
*The inception date of Investor A Shares is October 15, 1996. The
returns for the indices shown are from inception of Investor A Shares.
17
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary B Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the Portfolio's assets)
Management fees 0.25%
Shareholder administration fees(1) 0.60%
----
Total annual Portfolio operating expenses 0.85%
====
</TABLE>
(1)Shareholder administration fees of 0.10% are voluntarily waived on
Primary B Shares; however, there is no guarantee that these waivers
will continue for any specified period of time. This waiver is not
reflected in the table above.
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.46% and
0.98% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on
the target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of
those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown above
o the Portfolio's indirect expenses remain at the average of the range
as shown above for the 1 year example, excluding any fee waivers
and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary B Shares $160 $513 $889 $1,948
</TABLE>
18
<PAGE>
About the Nations Funds
The table starting on the next page is a brief overview of the objectives and
principal investments of the Nations Funds in which the LifeGoal Portfolios
invest. Each Portfolio invests in a different mix of Nations Funds. You'll find
the mix of Nations Funds and target allocations for each Portfolio starting on
page 5.
The team can substitute or add other Funds to this table at any time, including
Funds introduced after the date of this prospectus.
For more information
You'll find more detailed information about each Fund's investment strategies
and risks in its prospectus and in its SAI. Please call us at 1.800.321.7854
for copies.
19
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
-------------------------------------------- --------------------------------------------------
<S> <C> <C>
Domestic Stock Funds Growth of capital by investing in o at least 65% of its assets in common stocks of
Nations Value Fund companies that are believed to be U.S. companies. The Fund generally invests in
undervalued. companies in a broad range of industries
with market capitalizations of at least $1
billion and daily trading volumes of at
least $3 million
-------------------------------------------- --------------------------------------------------
Nations Blue Chip Fund Long-term capital appreciation through Nations Blue Chip Master portfolio. The Master
investments in blue chip stocks. Portfolio invests:
o at least 65% of its assets in blue chip stocks
o primarily in blue chip stocks that are
included in the S&P 500 Index
-------------------------------------------- --------------------------------------------------
Nations Strategic Growth Fund Long-term, after-tax returns by investing At least 65% of its assets in common stocks of
in a diversified portfolio of common companies selected from most major industry
stocks. sectors.
-------------------------------------------- --------------------------------------------------
Nations Marsico Focused Equities Long-term growth of capital. Nations Marsico Focused Equities Master
Fund Portfolio. The Master Portfolio invests:
o at least 65% of its assets in common
stocks of large companies. The Master
Portfolio, which is non-diversified,
generally holds a core position of 20 to 30
common stocks
o up to 25% of its assets in foreign securities
-------------------------------------------- --------------------------------------------------
Nations Small Company Fund Long-term capital growth by investing o at least 65% of its assets in companies with a
primarily in equity securities. market capitalization of $1 billion or
less. The Fund usually holds 75 to 130
securities, which include common stocks,
preferred stocks and convertible securities
like warrants, rights and convertible debt
-------------------------------------------- --------------------------------------------------
International Stock Funds Long-term capital appreciation by Nations International Value Master Portfolio. The
Nations International Value Fund investing primarily in equity securities Master Portfolio invests:
of foreign issuers, including emerging o at least 65% of its assets in foreign
markets countries. companies anywhere in the world that have a
market capitalization of more than $1
billion at the time of investment. The Fund
typically invests in at least three
countries other than the United States at
any one time
o primarily in common stocks, preferred
stocks, convertible securities,
either directly or indirectly through
closed-end investment companies and
depositary receipts
-------------------------------------------- --------------------------------------------------
Nations International Equity Fund Long-term capital growth by investing Nations International Equity Master Portfolio.
primarily in equity securities of non-United The Master Portfolio invests:
States companies in Europe, Australia, the o at least 65% of its assets in established
Far East and other regions, including companies located in at least three countries
developing countries. other than the United States. The investment
managers select countries, including emerging
market or developing countries, that they
believe have the potential for growth
o primarily in equity securities, which may
include equity interests in foreign investment
funds or trusts, convertible securities, real
estate investment trust securities and
depositary receipts
-------------------------------------------- --------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
------------------------------------------ --------------------------------------------------
<S> <C> <C>
Government & Corporate Bond Funds High current income consistent with o at least 65% of its total assets in investment
Nations Short-Term Income Fund minimal fluctuations of principal. grade fixed income securities. The team may
choose unrated securities if it believes they
are of comparable quality to investment grade
securities at the time of investment
o corporate debt securities, including bonds,
notes and debentures, mortgage-related
securities issued by governments, asset-backed
securities or U.S. government obligations
------------------------------------------ --------------------------------------------------
Nations Bond Fund Total return by investing in investment o at least 65% of its assets in investment grade
grade fixed income securities. fixed income securities. The portfolio
management team may choose unrated securities if
it believes they are of comparable quality to
investment grade securities at the time of
investment
o corporate debt securities, including bonds,
notes and debentures, U.S. government
obligations, foreign debt securities denominated
in U.S. dollars, mortgage-related securities,
asset-backed securities or municipal securities
------------------------------------------ --------------------------------------------------
Nations Strategic Income Fund Total return with an emphasis on current o at least 65% of its assets in investment grade
income by investing in a diversified debt securities, including corporate debt
portfolio of fixed income securities. securities, U.S. government obligations, foreign
debt securities denominated in U.S. dollars or
foreign currencies, and mortgage-related
securities issued by governments and
non-government issuers
o up to 35% of its assets in lower-quality fixed
income securities ("junk bonds" or "high yield
bonds") rated "B" or better by Moody's or S&P.
The portfolio management team may choose unrated
securities if it believes they are of comparable
quality at the time of investment
------------------------------------------ --------------------------------------------------
Money Market Fund Maximization of current income to the o money market instruments, including
Nations Prime Fund extent consistent with the preservation commercial paper, bank obligations, short-term
of capital and the maintenance of debt securities, guaranteed investment
liquidity. contracts, short-term taxable municipal
securities, repurchase agreements secured by
first-tier securities or U.S. government
obligations
------------------------------------------ --------------------------------------------------
</TABLE>
21
<PAGE>
[GRAPHIC]
You'll find specific information about each Portfolio's principal
investments, strategies and risks in the descriptions starting on
page 5.
[GRAPHIC]
Other important information
The following are some other risks and information you should consider before
you invest:
o Changing investment objectives and policies - The investment objective
and certain investment policies of any Portfolio or Fund can be
changed without shareholder approval. Other investment policies may be
changed only with shareholder approval.
o Holding other kinds of investments - The Portfolios or any Fund may
hold investments that aren't part of their principal investment
strategies. Please refer to the SAI for more information. The
portfolio managers or management team can also choose not to invest in
specific securities described in this prospectus and in the SAI.
o Foreign investment risk - Funds that invest in foreign securities may
be affected by changes in currency exchange rates and the costs of
converting currencies; foreign government controls on foreign
investment, repatriation of capital, and currency and exchange;
foreign taxes; inadequate supervision and regulation of some foreign
markets; difficulties selling some investments, which may increase
volatility; different settlement practices or delayed settlements in
some markets; difficulty getting complete or accurate information
about foreign companies; less strict accounting, auditing and
financial reporting standards than those in the U.S.; political,
economic or social instability; and difficulty enforcing legal rights
outside the U.S.
o Investing defensively - A Portfolio may temporarily hold up to 100% of
its assets in Nations Prime Fund, a money market fund, to try to
protect it during a market or economic downturn or because of
political or other conditions. A Portfolio may not achieve its
investment objective while it is investing defensively.
o Securities lending program - A Fund may lend portfolio securities to
approved broker-dealers or other financial institutions on a fully
collateralized basis in order to earn additional income. There may be
delays in receiving additional collateral after the loan is made or in
recovering the securities loaned.
o Portfolio turnover - A Portfolio or Fund that replaces -- or turns
over -- more than 100% of its investments in a year is considered to
trade frequently. Frequent trading can result in larger distributions
of short-term capital gains to shareholders. These gains are taxable
at higher rates than long-term capital gains. Frequent trading can
also mean higher brokerage and other transaction costs, which could
reduce the Portfolio's returns. The Portfolios generally buy
securities for capital appreciation, investment income, or both, and
don't engage in short-term trading. You'll find the portfolio turnover
rate for each Portfolio in Financial highlights.
22
<PAGE>
o Proposed reorganization - As of the date of this prospectus, it is
anticipated that management will propose a reorganization of each
Nations LifeGoal Portfolio into a newly created shell Portfolio that
is substantially identical to the existing Portfolio. The principal
effect of these reorganizations would be to redomicile the Portfolios
in Delaware, under a Delaware business trust structure that management
believes provides greater flexibility and efficiency in certain
corporate and organizational matters. If approved and recommended by
the Nations Funds Boards, shareholders will be asked to consider and
vote on an Agreement and Plan of Reorganization at special
shareholders meetings. If shareholders approve this Plan, the
reorganizations would likely occur in the second quarter of 2001.
[GRAPHIC]
How the Portfolios are managed
[GRAPHIC]
Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the Nations
Funds Family, including the Portfolios described in this prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of Bank
of America, which is owned by Bank of America Corporation.
Nations Funds pays BAAI an annual fee for its investment advisory services. The
fee is calculated as a percentage of the average daily net assets of each
Portfolio and is paid monthly. BAAI uses part of this money to pay the
investment sub-adviser for the services it provides to each Portfolio. BAAI has
also agreed to pay all other Portfolio expenses, except taxes, brokerage fees
and commissions, extraordinary expenses, and any distribution (12b-1),
shareholder servicing or shareholder administration fees.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Portfolios' last fiscal
year:
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum Actual fee
advisory paid last
fee fiscal year
<S> <C> <C>
Nations LifeGoal Growth Portfolio 0.25% 0.25%
Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25%
Nations LifeGoal Income and Growth Portfolio 0.25% 0.25%
</TABLE>
23
<PAGE>
Investment sub-advisers
Nations Funds and BAAI engage one or more investment sub-advisers for each
Portfolio to make day-to-day investment decisions for the Portfolio. BAAI
retains ultimate responsibility (subject to Board oversight) for overseeing the
sub-advisers and evaluates the Portfolios' needs and available sub-advisers'
skills and abilities on an ongoing basis. Based on its evaluations, BAAI may at
times recommend to a Portfolio's Board that the Portfolio:
o change, add or terminate one or more sub-advisers;
o continue to retain a sub-adviser even though the sub-adviser's ownership or
corporate structure has changed; or
o materially change a sub-advisory agreement with a sub-adviser.
Applicable law requires a Portfolio to obtain shareholder approval in order to
act on most of these types of recommendations, even if the Portfolio's Board
has approved the proposed action and believes that the action is in
shareholders' best interests. BAAI and the Portfolios plan to apply for relief
from the SEC to permit the Portfolios to act on many of BAAI's recommendations
with approval only by the Portfolios' Board and not by Portfolio shareholders.
BAAI or a Portfolio would inform the Portfolio's shareholders of any actions
taken in reliance on this relief. Until BAAI and the Portfolios obtain the
relief, each Portfolio will continue to submit these matters to shareholders
for their approval to the extent required by applicable law.
[GRAPHIC]
Banc of America Capital Management, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Banc of America Capital Management, Inc.
BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank
of America. Its management expertise covers all major domestic asset classes,
including equity and fixed income securities, and money market instruments.
Currently managing more than $120 billion, BACAP has over 200 institutional
clients and is sub-adviser to more than 50 mutual funds in the Nations Funds
Family. BACAP generally takes a team approach to investment management. Each
team or individual portfolio manager has access to the latest technology and
analytical resources.
BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's
Investment Strategies Team is responsible for making the day-to-day investment
decisions for each Portfolio.
BACAP is also the investment sub-adviser to the Nations Funds that appear in
the table below. The table tells you which internal BACAP asset management team
is responsible for making the day-to-day investment decisions for each Fund.
24
<PAGE>
<TABLE>
<CAPTION>
Fund BACAP Team
<S> <C>
Nations Value Fund Value Strategies Team
Nations Small Company Fund SmallCap Strategies Team
Nations Short-Term Income Fund Fixed Income Management Team
Nations Bond Fund Fixed Income Management Team
Nations Strategic Income Fund Fixed Income Management Team
Nations Prime Fund Taxable Money Market Management Team
Nations Strategic Growth Fund Growth Strategies Team
</TABLE>
Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the underlying Nations Funds in which the
Portfolios invest. These sub-advisers function under the supervision of BAAI
and the Boards of Nations Funds.
[GRAPHIC]
Marsico Capital
Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado 80202
Marsico Capital Management, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas F.
Marsico in September 1997. It is a registered investment adviser, specializing
in large capitalization stocks, and currently has over $16 billion in assets
under management.
Marsico Management Holdings, LLC, a wholly-owned subsidiary of Bank of America
Corporation, indirectly owns 50% of the equity of Marsico Capital.
On June 28, 2000, Bank of America announced its intention to purchase the
remaining 50% equity interest in Marsico Capital. Under applicable law, the
change in ownership that would result from this purchase would terminate
Marsico Capital's investment sub-advisory agreements with the Nations Funds.
Shareholders of Nations Marsico Focused Equities Fund must approve a new
investment sub-advisory agreement in order for Marsico Capital to continue to
serve as investment sub-adviser to the Fund. It is anticipated that a special
meeting of shareholders would be called in the spring of 2001 to seek this
approval.
Marsico Capital is the investment sub-adviser to Nations Marsico Focused
Equities Master Portfolio.
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment
decisions for the Master Portfolio. Mr. Marsico was an executive vice president
and portfolio manager at Janus Capital Corporation from 1988 until he formed
Marsico Capital in September 1997. He has more than 20 years of experience as a
securities analyst and portfolio manager.
25
<PAGE>
[GRAPHIC]
Brandes Investment
Partners, L.P.
12750 High Bluff Drive
San Diego, California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 53 investment
professionals who manage more than $40 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to build
wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' Large Cap Investment Committee is responsible for making
the day-to-day investment decisions for the Master Portfolio.
[GRAPHIC]
Chicago Equity Partners LLC
180 North LaSalle
Suite 3800
Chicago, Illinois 60601
Chicago Equity Partners LLC
Chicago Equity is a registered investment adviser and is owned by the firm's
senior management. Chicago Equity is the investment sub-adviser to Nations Blue
Chip Master Portfolio.
Chicago Equity's Equity Management Team is responsible for making the
day-to-day investment decisions for Nations Blue Chip Master Portfolio.
[GRAPHIC]
Gartmore Global Partners
Gartmore House
8 Fenchurch Place
London EC3M 4PH, England
Gartmore Global Partners
Gartmore is a global asset manager dedicated to serving the needs of U.S. based
investors. Gartmore was formed in 1995 as a registered investment adviser and
manages more than $1 billion in assets.
Gartmore is a general partnership which is an indirect wholly-owned subsidiary
of Nationwide Mutual Insurance Company.
Gartmore generally follows a growth philosophy, which is reflected in its
active management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International
Equity Master Portfolio.
Gartmore's portion of Nations International Equity Master Portfolio is
co-managed by five portfolio managers:
Christopher Palmer has been responsible since May 1999 for investments in
developing countries, and has been the principal portfolio manager of Nations
Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a
senior investment manager on the Gartmore Emerging Markets Team. Before he
joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment
bank, in its Mexico City and Hong Kong offices, and managed global derivatives,
credit and counterparty credit risk as vice president in the Institutional
Credit Department of Bear Stearns & Co. He graduated from Colgate University in
1986 with a BA Honors degree in History and completed an MBA in Finance at New
York University in 1988. Mr. Palmer was awarded the CFA designation by the
Association of Investment Management and Research in 1993.
26
<PAGE>
Seok Teoh has been responsible since June 1998 for investments in Asia. Ms.
Teoh has been with Gartmore since 1990 as the London based manager of its Far
East Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh
is native to Singapore and is fluent in Mandarin and Cantonese. She received an
Economics degree from the University of Durham.
Nick Reid has been responsible (or has shared responsibility) for investments
in Japan since August 1999. He has been investment manager for the Gartmore
Japanese Equities Team since he joined Gartmore in 1994 and has specific
responsibility for managing retail funds. Before he joined Gartmore, Mr. Reid
was a United Kingdom Smaller Companies Analyst with Panmure Gordon and a fund
manager covering Japanese and other Asian markets with Refuge Assurance. He
graduated from Cambridge University in 1989 with an honors degree in History.
Mr. Reid is also an associate member of the Institute of Investment Management
and Research.
Stephen Jones has been responsible for investments in Europe since 1998. He is
also head of Gartmore European Equities. Mr. Jones joined Gartmore in 1994 and
was appointed head of the European equity team in 1995. He began his career at
The Prudential in 1984, and became a European equities investment manager in
1987, focusing on France, Belgium and Switzerland. He graduated from Manchester
University in 1984 with an honors degree in Economics.
Stephen Watson has been responsible since June 1998 for allocating assets among
the various regions, and for determining investments in regions not covered by
the other portfolio managers. He was the sole portfolio manager of Nations
International Equity Fund from February 1995 to June 1998. Mr. Watson joined
Gartmore in 1993 as a global fund manager, and is the chief investment officer
of Gartmore Global Partners and a member of Gartmore's global policy group.
Before joining Gartmore, he was a director and global fund manager with James
Capel Fund Managers, London, as well as client service manager for
international clients. He was in Capel-Cure Myers' portfolio management
division from 1980 to 1987, and began his career in 1976 with Samuel Motagu. He
is a member of the Securities Institute.
[GRAPHIC]
INVESCO Global Asset
Management (N.A), Inc.
1360 Peachtree Street, N.E.
Atlanta, Georgia 30309
INVESCO Global Asset Management (N.A.), Inc.
INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial
holding company located in London.
INVESCO Global is one of the three investment sub-advisers to Nations
International Equity Master Portfolio. INVESCO's International Equity Portfolio
Management Team is responsible for making the day-to-day investment decisions
for its portion of the Master Portfolio.
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[GRAPHIC]
Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Putnam Investment Management, Inc.
Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Master
Portfolio.
[GRAPHIC]
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Other service providers
The Portfolios are distributed and co-administered by Stephens Inc., a
registered broker/dealer. Stephens does not receive any fees for the
administrative services it provides to the Portfolios. The Portfolios pay
shareholder administration fees to BAAI or financial institutions for providing
services to investors.
BAAI is also co-administrator of the Portfolios, and assists in overseeing the
administrative operations of the Funds.
[GRAPHIC]
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
PFPC Inc. (PFPC) is also the transfer agent for the Portfolios' shares. Its
responsibilities include processing purchases, sales and exchanges, calculating
and paying distributions, keeping shareholder records, preparing account
statements and providing customer service.
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About your investment
--------------------------------------------------------------------------------
[GRAPHIC]
When you sell shares of a mutual fund, the fund is effectively
"buying" them back from you. This is called a redemption.
[GRAPHIC]
A business day is any day that the New York Stock Exchange (NYSE)
is open. A business day ends at the close of regular trading on the
NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early,
the business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
[GRAPHIC]
Buying, selling and exchanging shares
This prospectus offers Primary B Shares of the Portfolios. Here are some
general rules about this class of shares:
o Primary B Shares are generally available only to financial institutions and
intermediaries that sign an account with us or Stephens. These include:
o Bank of America and certain of its affiliates
o brokerage firms
o other financial institutions
o The minimum initial investment is $1,000.
o There is no minimum amount for additional investments.
o There are no sales charges for buying, selling or exchanging these shares.
You'll find more information about buying, selling and exchanging Primary B
Shares on the pages that follow. You should also ask your financial institution
or intermediary about its limits, fees and policies for buying, selling and
exchanging shares, which may be different from those described here, and about
its related programs or services.
The Portfolios also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. Please contact your
investment professional, or call us at 1.800.321.7854 if you have any questions
or you need help placing an order.
How shares are priced
All transactions are based on the price of a Portfolio's shares -- or its net
asset value per share. We calculate net asset value per share for each class of
each Portfolio at the end of each business day. The net asset value per share
of a Portfolio is based on the net asset value per share of the Nations Funds
the Portfolio invests in.
We calculate the net asset value for each class of a Fund by determining the
value of the Fund's assets in the class and then subtracting its liabilities.
Next, we divide this amount by the number of shares that investors are holding
in the class.
Valuing securities in an underlying Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, or the value of a security has been materially
affected by events occurring after a foreign exchange closes, we'll base the
price of a security on its fair value. When a Fund uses fair value to price
securities it may value those securities higher or lower than another fund that
uses market quotations to price the same securities. We use the amortized cost
method, which approximates market value, to value short-term investments
maturing in 60 days or less. International markets may be open on days when
U.S. markets are closed. The value of foreign securities owned by a Fund could
change on days when Fund shares may not be bought or sold.
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<PAGE>
How orders are processed
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, PFPC or their agents before the end of a business day
(usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive
that day's net asset value per share. Orders received after the end of a
business day will receive the next business day's net asset value per share.
The business day that applies to your order is also called the trade date. We
may refuse any order to buy or exchange shares. If this happens, we'll return
any money we've received.
[GRAPHIC]
Buying shares
Here are some general rules for buying shares:
o Investors buy Primary B Shares at net asset value per share.
o If we don't receive payment within three business days of receiving
an order, we'll refuse the order. We'll return any payment received
for orders that we refuse.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for ensuring that we receive
payment on time.
o Shares purchased are recorded on the books of the Portfolio. We
don't issue certificates.
o Financial institutions and intermediaries are responsible for
recording the beneficial ownership of the shares of their clients,
and for reporting this ownership on account statements they send to
their clients.
[GRAPHIC]
Selling shares
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire within
three business days after Stephens, PFPC or their agents receive the
order.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for depositing the sale
proceeds to their accounts on time.
o If you paid for your shares with a check that wasn't certified,
we'll hold the sale proceeds when you sell those shares for at least
15 days after the trade date of the purchase, or until the check has
cleared, whichever is later.
o Under certain circumstances allowed under the Investment Company Act
of 1940 (1940 Act), we can pay you in securities or other property
when you sell shares.
o We can delay payment of the sale proceeds for up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information on these restrictions, please contact your retirement
plan administrator.
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We may sell shares:
o if the value of an investor's account falls below $500. We'll
provide 60 days notice in writing if we're going to do this
o if a financial institution or intermediary tells us to sell the
shares for a client under arrangements it has made with its clients
o under certain other circumstances allowed under the 1940 Act
[GRAPHIC]
You should make sure you understand the investment objective and
principal investment strategies of the Portfolio or Fund you're
exchanging into. Please read its prospectus carefully.
[GRAPHIC]
Exchanging shares
Investors can sell shares of a Portfolio to buy shares of another
Portfolio or Nations Fund. This is called an exchange, and may be
appropriate if investment goals or tolerance for risk change.
Here's how exchanges work:
o Investors can exchange Primary B Shares of a Portfolio for Primary B
Shares of any other Portfolio or Nations Fund.
o The rules for buying shares of a Portfolio or Fund, including any
minimum investment requirements, apply to exchanges into that
Portfolio or Fund.
o Exchanges can only be made into a Portfolio or Fund that is legally
sold in the investor's state of residence.
o Exchanges can generally only be made into a Portfolio or Fund that
is accepting investments.
o We may limit the number of exchanges that can be made within a
specified period of time.
o We may change or cancel the right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
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[GRAPHIC]
How selling and servicing agents are paid
[GRAPHIC]
The financial institution or intermediary that buys shares for you
is also sometimes referred to as a selling agent.
The selling agent may charge other fees for services provided to
your account.
Selling and servicing agents usually receive compensation when you invest in
the Portfolios. The kind and amount of the compensation depends on the share
class in which you invest. Selling agents typically pay a portion of the
compensation they receive to their investment professionals.
Shareholder administration fees
BAAI, its affiliates and/or other financial institutions and intermediaries may
receive a maximum annual shareholder administration fee of up to 0.60% of the
average daily net assets of Primary B Shares of the Portfolios under a
shareholder administration plan.
Fees are calculated daily and deducted monthly. Because these fees are paid out
of the Portfolios' assets on an ongoing basis they will increase the cost of
your investment over time, and may cost you more than any sales charge you may
pay.
The Portfolios pay these fees to eligible financial institutions for as long as
the plan continues. We may reduce or discontinue payments at any time.
Other compensation
Selling and servicing agents may also receive non-cash compensation like trips
to sales seminars or vacation destinations, tickets to sporting events, theater
or other entertainment, opportunities to participate in golf or other outings
and gift certificates for meals or merchandise.
This compensation, which is not paid by the Portfolios, is discretionary and
may be available only to selected selling and servicing agents. For example,
Stephens sometimes sponsors promotions involving Banc of America Investments,
Inc., an affiliate of BAAI, and certain other selling or servicing agents.
Selected selling and servicing agents may also receive compensation for opening
a minimum number of accounts.
BAAI and Stephens may pay amounts from their own assets to selling or servicing
agents of the Funds for services they provide.
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[GRAPHIC]
Distributions and taxes
[GRAPHIC]
The power of compounding
Reinvesting your distributions buys you more shares of a Portfolio
-- which lets you take advantage of the potential for compound
growth.
Putting the money you earn back into your investment means it, in
turn, may earn even more money. Over time, the power of compounding
has the potential to significantly increase the value of your
investment. There is no assurance, however, that you'll earn more
money if you reinvest your distributions.
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on common stocks.
o A fund can also have capital gain if the value of its investments
increases. If a fund sells an investment at a gain, the gain is realized.
If a fund continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The Portfolios
intend to pay out a sufficient amount of their income and capital gain to their
shareholders so the Portfolios won't have to pay any income tax. When a
Portfolio makes this kind of a payment, it's split equally among all shares,
and is called a distribution.
All of the Portfolios distribute net investment income quarterly, and any net
realized capital gain at least once a year.
The distribution you receive is paid based on the number of shares you hold on
the record date, which is usually the day the distribution is declared (daily
dividend Funds) or the day before the distribution is declared (all other
Funds). Shares are eligible to receive distributions from the settlement date
(daily dividend Funds) or the trade date (all other Funds) of the purchase up
to and including the day before the shares are sold.
Different share classes of a Portfolio usually pay different distribution
amounts, because each class has different expenses. Each time a distribution is
made, the net asset value per share of the share class is reduced by the amount
of the distribution.
We'll automatically reinvest distributions in additional shares of the same
Portfolio unless you tell us you want to receive your distributions in cash.
You can do this by writing to us at the address on the back cover or by calling
us at 1.800.321.7854.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll normally pay any distribution that applies to those
shares in cash within five business days after the sale was made.
If you buy shares of a Portfolio shortly before it makes a distribution, you
will, in effect, receive part of your purchase back in the distribution, which
is subject to tax. Similarly, if you buy shares of a Portfolio that holds
securities with unrealized capital gain, you will, in effect, receive part of
your purchase back if and when the Portfolio sells those securities and
distributes the gain. This distribution is also subject to tax. Some Portfolios
have built up, or have the potential to build up, high levels of unrealized
capital gain.
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[GRAPHIC]
This information is a summary of how federal income taxes may
affect your investment in the Portfolios. It is not intended as a
substitute for careful tax planning. You should consult with your
own tax adviser about your situation, including any foreign, state
and local taxes that may apply.
[GRAPHIC]
For more information about taxes, please see the SAI.
How taxes affect your investment
Distributions that come from net investment income and any net short-term
capital gain (generally the excess of net short-term capital gain over net
long-term capital loss) generally are taxable to you as ordinary income. A
portion of such distributions to corporate shareholders may qualify for the
dividends received distribution.
Distributions that come from net capital gain (generally the excess of net
long-term capital gain over net short-term capital loss) generally are taxable
to you as net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Portfolio.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts to be paid for in securities
or other property and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax (at a rate of 30%,
or a lower rate if a treaty applies) on distributions paid to foreign
shareholders.
Taxation of redemptions and exchanges
Your redemptions (including redemptions paid in securities or other property)
and exchanges of Portfolio or Fund shares will usually result in a taxable
capital gain or loss to you, depending on the amount you receive for your
shares (or are deemed to receive in the case of exchanges) and the amount you
paid (or are deemed to have paid) for them.
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[GRAPHIC]
Financial highlights
The financial highlights table is designed to help you understand how the
Portfolios have performed for the past five years or, if shorter, the period of
the Portfolio's operations. Certain information reflects financial results for
a single Portfolio share. The total investment return line indicates how much
an investment in the Portfolio would have earned, assuming all dividends and
distributions had been reinvested. Financial highlights for Primary B Shares of
LifeGoal Income and Growth Portfolio are not provided because this class of
shares had not yet commenced operations during the period indicated.
This information has been audited by PricewaterhouseCoopers LLP. The
independent accountants' report and Nations Funds financial statements are
incorporated by reference into the SAI. Please see the back cover to find out
how you can get a copy.
35
<PAGE>
LifeGoal Growth Portfolio For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Primary B Shares Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98*(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.14 $ 12.49 $ 12.25
Net investment income/(loss) (0.02) 0.00 0.01
Net realized and unrealized gain on investments 3.86 0.30 0.70
Net increase in net assets resulting from investment
operations 3.84 0.30 0.71
Distributions:
Dividends from net investment income -- -- (0.01)
Distributions in excess of net investment income (0.16) (0.05) (0.25)
Distributions from net realized capital gains (0.39) (0.60) (0.21)
Total dividends and distributions (0.55) (0.65) (0.47)
Net asset value, end of period $ 15.43 $ 12.14 $ 12.49
Total return++ 32.40% 2.58% 6.24%
===================================================== ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9 $ 7 $ 6
Ratio of operating expenses to average net
assets+++ 0.75% 0.75% 0.75%+
Ratio of net investment income to average net
assets (0.16)% (0.04)% 0.15%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85% -- --
Portfolio turnover rate 161% 159% 69%
</TABLE>
* LifeGoal Growth Portfolio Primary B Shares
commenced investment operations on September 19,
1997.
+ Annualized.
++ Total return represents aggregate total return for
the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying Funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
LifeGoal Balanced Growth
Portfolio For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Primary B Shares Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98*(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 10.94 $ 10.95
Net investment income 0.32 0.23 0.16
Net realized and unrealized gain/(loss) on
investments 1.52 0.20 0.77
Net increase/(decrease) in net assets resulting from
investment operations 1.84 0.43 0.93
Distributions:
Dividends from net investment income (0.34) (0.22) (0.20)
Distributions in excess of net investment income (0.04) -- (0.24)
Distributions from net realized capital gains (0.29) (0.33) (0.50)
Total dividends and distributions (0.67) (0.55) (0.94)
Net asset value, end of period $ 11.99 $ 10.82 $ 10.94
Total return++ 17.73% 4.15% 9.24%
===================================================== ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 322 $ 276 $ 26
Ratio of operating expenses to average net
assets+++ 0.75% 0.75% 0.75%+
Ratio of net investment income to average net
assets 2.87% 2.27% 2.37%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85% -- --
Portfolio turnover rate 124% 121% 94%
</TABLE>
* LifeGoal Balanced Growth Portfolio Primary B Shares
commenced investment operations on August 4, 1997.
+ Annualized.
++ Total return represents aggregate total return for
the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying Funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
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[GRAPHIC]
This glossary includes explanations of the important terms that may
be used in this prospectus. Some of the terms explained may apply
to Nations Funds not included in this prospectus.
[GRAPHIC]
Terms used in this prospectus
Asset-backed security - a debt security that gives you an interest in a pool of
assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.
Average dollar-weighted maturity - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.
Bank obligation - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.
Capital gain or loss - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
Cash equivalents - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's Investor
Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).
Commercial paper - a money market instrument issued by a large company.
Common stock - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
Convertible debt - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
Convertible security - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.
Corporate obligation - a money market instrument issued by a corporation or
commercial bank.
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Debt security - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on a
specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
Depositary receipts - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates traded
in U.S. markets representing an interest of a foreign company. They were
created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.
Dividend yield - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
Duration - a measure used to estimate a security's or portfolio's sensitivity
to changes in interest rates. For example, if interest rates rise by one
percentage point, the share price of a fund with a duration of five years would
decline by about 5%. If interest rates fall by one percentage point, the fund's
share price would rise by about 5%.
Equity security - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.
First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest short-term
rating from a nationally recognized statistical rating organization (NRSRO) or
if unrated, is determined by the fund's portfolio management team to be of
comparable quality, or is a money market fund issued by a registered investment
company, or is a government security.
Fixed income security - an intermediate to long-term debt security that matures
in more than one year.
Foreign security - a debt or equity security issued by a foreign company or
government.
Fundamental analysis - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
Futures - a contract to buy or sell an asset or an index of securities at a
specified price on a specified future date. The price is set through a futures
exchange.
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Investment grade - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other NRSROs) based on the issuer's ability to pay interest and repay
principal on time. The portfolio management team may consider an unrated debt
security to be investment grade if the team believes it is of comparable
quality. Please see the SAI for more information about credit ratings.
Lehman Aggregate Bond Index - an index made up of the Lehman
Government/Corporate Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index. These indices include U.S. government agency
and U.S. Treasury securities, corporate bonds and mortgage-backed securities.
All dividends are reinvested.
Liquidity - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
Money market instrument - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
Mortgage-backed security or Mortgage-related security - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.
Municipal security (obligation) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user fees
for water or revenues from a utility. Interest income is exempt from federal
income taxes and is generally exempt from state taxes if you live in the state
that issued the security. If you live in the municipality that issued the
security, interest income may also be exempt from local taxes.
Non-diversified - a fund that holds securities of fewer issuers than other
kinds of funds. Non-diversified funds tend to have greater price swings than
more diversified funds because events affecting one or more of its securities
may have a disproportionately large effect on the fund.
Preferred stock - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the company's
remaining assets before common shareholders and after bondholders and other
creditors.
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Quantitative analysis - an analysis of financial information about a company or
security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
Real Estate Investment Trust (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans orinterests.
Repurchase agreement - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.
Right - a temporary privilege allowing investors who already own a common stock
to buy additional shares directly from the company at a specified price or
formula.
S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.
Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds, but is not a first-tier
security.
Senior security - a debt security that allows holders to receive their share of
a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
Settlement Date - the date on which an order is settled either by payment or
delivery of securities.
Trade date - the effective date of a purchase, sale or exchange transaction, or
other instructions sent to us. The trade date is determined by the day and time
we receive the order or instructions in a form that's acceptable to us.
U.S. government obligations - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
U.S. Treasury obligation - a debt security issued by the U.S. Treasury.
Warrant - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1)S&P has not reviewed any stock included in the S&P 500 for its investment
merit. S&P determines and calculates its index independently of the Funds and
is not a sponsor or affiliate of the Funds. S&P gives no information and
makes no statements about the suitability of investing in the Funds or the
ability of its index to track stock market performance. S&P makes no
guarantees about the index, any data included in it and the suitability of
the index or its data for any purpose. "Standard and Poor's" and "S&P 500"
are trademarks of The McGraw-Hill Companies, Inc.
40
<PAGE>
[GRAPHIC]
Where to find more information
You'll find more information about the LifeGoal Portfolios in the following
documents:
Annual and semi-annual reports
The annual and semi-annual reports contain information about Portfolio
investments and performance, the financial statements and the
independent accountants' reports. The annual report also includes a
discussion about the market conditions and investment strategies that
had a significant effect on each Portfolio's performance during the
period covered.
[GRAPHIC]
Statement of Additional Information
The SAI contains additional information about the Portfolios and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other information
about the Portfolios and make shareholder inquiries by contacting
Nations Funds:
By telephone: 1.800.321.7854
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nations-funds.com
Information about the Portfolios can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. The reports and other information about the Portfolios
are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following
E-mail address: [email protected], or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
SEC file number:
Nations LifeGoal Funds, Inc., 811-07745
[Nations Funds Logo]
LGPROPB - 8/00
<PAGE>
[GRAPHIC]
LifeGoal Portfolios
Prospectus -- Primary A Shares
August 1, 2000
LifeGoal Growth Portfolio
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
----------------------
Not FDIC Insured
----------------------
May Lose Value
----------------------
No Bank Guarantee
----------------------
[NATIONS FUNDS LOGO]
<PAGE>
An overview of the Portfolios
--------------------------------------------------------------------------------
[GRAPHIC]
Terms used in this prospectus
In this prospectus, we, us and our refer to the Nations Funds
family (Nations Funds or Nations Funds Family). Some other
important terms we've used may be new to you. These are printed in
italics where they first appear in a section and are described in
Terms used in this prospectus.
[GRAPHIC]
You'll find Terms used in
this prospectus on
page 37.
Your investment in a Portfolio is not a bank deposit and is not
insured or guaranteed by Bank of America, N. A. (Bank of America),
the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Your investment may lose money.
Affiliates of Bank of America are paid for the services they
provide to the Portfolios and the underlying Funds.
This booklet, which is called a prospectus, tells you about Nations Funds
LifeGoal Portfolios. Please read it carefully because it contains information
that's designed to help you make informed investment decisions.
Unlike traditional mutual funds, which invest in individual securities, the
Portfolios invest in a mix of Nations Funds Domestic Stock, International
Stock, Government & Corporate Bond and Money Market Funds using an asset
allocation approach. This kind of mutual fund is sometimes called a "fund of
funds."
About asset allocation
Asset allocation is the process of creating a diversified portfolio by
investing in different asset classes -- for example, equity securities, fixed
income securities and money market instruments -- in varying proportions.
The mix of asset classes and how much is invested in each may be the most
important factor in how a Portfolio performs and the amount of risk involved.
Each asset class, and market segments within a class, like large, mid- and
small capitalization stocks, has different return and risk characteristics,
and reacts in different ways to changes in the economy. An investment approach
that combines asset classes and market segments may help to reduce overall
Portfolio volatility.
About the Portfolios
Each Portfolio has its own asset allocation strategy, which gives it
distinctive risk/return characteristics. The performance of each Portfolio
depends on many factors, including its allocation strategy and the performance
of the Nations Funds it invests in. In general, the more a LifeGoal Portfolio
allocates to Domestic Stock and International Stock Funds, the greater the
potential return and the greater the risk of a decline in share price. The
more a LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the
greater the potential for price stability and the lower the potential return.
There's always a risk, however, that you'll lose money or you may not earn as
much as you expect.
LifeGoal Growth Portfolio focuses on long-term growth by normally allocating
all of its assets to a mix of Funds that invest primarily in equity
securities. Equities have the potential to provide higher returns than many
other kinds of investments, but they also tend to have the highest risk.
LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally
allocating its assets to a balanced mix of Funds that invest in equity and
fixed income securities. Fixed income securities have the potential to
increase in value, because, when interest rates fall, the value of these
securities tends to rise. When interest rates rise, however, the value of
these securities tends to fall. Other things can also affect the value of
fixed income securities.
2
<PAGE>
LifeGoal Income and Growth Portfolio focuses on current income and modest
growth. It normally allocates most of its assets to Funds that invest in fixed
income securities, but may also allocate some assets to Funds that invest in
equity securities. Over time, the return on this Portfolio may be lower than
the return on the other Portfolios.
Is LifeGoal right for you?
When you're choosing a Portfolio to invest in, you should consider things like
your investment goals, how much risk you can accept and how long you're
planning to hold your investment.
The LifeGoal Portfolios may be suitable for you if:
o you have longer-term investment goals
o they're part of a balanced portfolio
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with equity and fixed income securities
o you have short-term investment goals
o you're looking for a regular stream of income
You'll find a discussion of each Portfolio's principal investments, strategies
and risks in the Portfolio descriptions that start on page 5.
For more information
If you have any questions about the Portfolios, please call us at
1.800.765.2668 or contact your investment professional.
You'll find more information about the Portfolios in the Statement of
Additional Information (SAI). The SAI includes more detailed information about
each Portfolio's investments, policies, performance and management, among
other things. Please turn to the back cover to find out how you can get a
copy.
3
<PAGE>
What's inside
--------------------------------------------------------------------------------
[GRAPHIC]
Banc of America Advisors, Inc. Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to
each of the Portfolios. BAAI is responsible for the overall
management and supervision of the investment management of each
Portfolio. BAAI and Nations Funds have engaged a
sub-adviser -- Banc of America Capital Management, Inc.
(BACAP) -- which is responsible for the day-to-day investment
decisions for each of the Portfolios.
[GRAPHIC]
You'll find more about
BAAI and BACAP
starting on page 23.
<TABLE>
<S> <C>
[GRAPHIC] About the Portfolios
LifeGoal Growth Portfolio 5
Sub-adviser: BACAP
--------------------------------------------------------
LifeGoal Balanced Growth Portfolio 9
Sub-adviser: BACAP
--------------------------------------------------------
LifeGoal Income and Growth Portfolio 14
Sub-adviser: BACAP
--------------------------------------------------------
About the Nations Funds 19
--------------------------------------------------------
Other important information 22
--------------------------------------------------------
How the Portfolios are managed 23
[GRAPHIC] About your investment
Information for investors
Buying, selling and exchanging shares 29
Distributions and taxes 32
--------------------------------------------------------
Financial highlights 34
--------------------------------------------------------
Terms used in this prospectus 37
--------------------------------------------------------
Where to find more information back cover
</TABLE>
4
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Growth Portfolio
[GRAPHIC] Investment objective
The Portfolio seeks capital appreciation through exposure to a variety
of equity market segments.
[GRAPHIC]
Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares
of Nations Funds Domestic Stock and International Stock Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations set
for the Portfolio. It bases its allocations on the Portfolio's investment
objective, historical returns for each asset class and on its outlook for
the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well as the
expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at least
monthly, and may change these allocations when it believes it's appropriate
to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target allocation,
the team may allocate money coming into the Portfolio to the other Fund
categories
o if there are fewer assets in a Fund category than in the target allocation,
it may allocate money coming into the Portfolio to that Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
5
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio Target allocation for each
can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 40-75%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 15-35%
Nations Small Company Fund
International stock funds 10-30%
Nations International Value Fund
Nations International Equity Fund
</TABLE>
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.765.2668 for a copy.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 22 and in the SAI.
[GRAPHIC] Risks and other things to consider
LifeGoal Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy to
try to achieve the highest total return. There is a risk that the mix of
investments will not produce the returns they expect, or that the
Portfolio will fall in value. There is also the risk that the Funds the
Portfolio invests in will not produce the returns the team expects, or
will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that invest
in stocks. The value of the stocks a Fund holds can be affected by
changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the stock
markets, as measured by the S&P 500 and other commonly used indices,
were trading at historically high levels. There can be no guarantee that
these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they trade
less frequently and in lower volumes. These securities may have a higher
potential for gains, but also carry more risk.
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment, difficulties
selling some securities and lack of or limited financial information.
Withholding taxes also may apply to some foreign investments. Funds that
invest in securities of companies in emerging markets have high growth
potential, but can be more volatile than securities in more developed
markets.
o Rebalancing policy - The actual amount in each Fund or category of Funds
may vary from the allocations set by the team. This could continue for
some time.
6
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC] A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Primary
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did.
[BAR GRAPH APPEARS HERE]
1997 1998 1999
14.70% 12.74% 25.89%
*Year-to-date return as of June 30, 2000: 6.37%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 23.67%
Worst: 3rd quarter 1998: -16.67%
</TABLE>
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500, an unmanaged index of 500 widely
held common stocks, weighted by market capitalization. The index is not
available for investment.
<TABLE>
<CAPTION>
Since
1 year inception*
<S> <C> <C>
Primary A Shares 25.89% 17.65%
S&P 500 21.04% 28.06%
</TABLE>
*The inception date of Primary A Shares is October 15, 1996. The return
for the index shown is from inception of Primary A Shares.
7
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary A Shares
<S> <C>
Maximum sales charge (load) none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the
Portfolio's assets)
Management fees 0.25%
----
Total annual Portfolio operating expenses 0.25%
====
</TABLE>
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.99% and
1.18% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on the
target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the
table above
o the Portfolio's indirect expenses remain at the average of the range as
shown above for the 1 year example, excluding any fee waivers and/or
reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $135 $428 $742 $1,632
</TABLE>
8
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Balanced Growth Portfolio
[GRAPHIC] Investment objective
The Portfolio seeks total return through a balanced portfolio of equity
and fixed income securities.
[GRAPHIC] Investment strategies
The Portfolio normally invests all of its assets in Primary A Shares of
a balanced mix of Nations Funds Domestic Stock and International Stock
and Government & Corporate Bond Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations set
for the Portfolio. It bases its allocations on the Portfolio's investment
objective, historical returns for each asset class and on its outlook for
the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well as the
expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at least
monthly, and may change these allocations when it believes it's appropriate
to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target allocation,
the team may allocate money coming into the Portfolio to the other Fund
categories
o if there are fewer assets in a Fund category than in the target allocation,
it may allocate money coming into the Portfolio to that Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
9
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Balanced Growth Target allocation for each
Portfolio can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 20-40%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 10-20%
Nations Small Company Fund
International stock funds 5-15%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 40-60%
Nations Bond Fund
Nations Strategic Income Fund
</TABLE>
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 22 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.765.2668 for a copy.
[GRAPHIC] Risks and other things to consider
LifeGoal Balanced Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy to
try to achieve the highest total return. There is a risk that the mix of
investments will not produce the returns they expect, or that the
Portfolio will fall in value. There is also the risk that the Funds the
Portfolio invests in will not produce the returns the team expects, or
will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that invest
in stocks. The value of the stocks a Fund holds can be affected by
changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the stock
markets, as measured by the S&P 500 and other commonly used indices,
were trading at historically high levels. There can be no guarantee that
these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they trade
less frequently and in lower volumes. These securities may have a higher
potential for gains, but also carry more risk.
10
<PAGE>
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment, difficulties
selling some securities and lack of or limited financial information.
Withholding taxes may also apply to some foreign investments. Funds that
invest in securities of companies in emerging markets have high growth
potential, but can be more volatile than securities in more developed
markets.
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when interest
rates rise than fixed income securities with shorter terms.
o Credit risk - A Fund that invests in fixed income securities could lose
money if the issuer of a fixed income security is unable to pay interest
or repay principal when it's due. Credit risk usually applies to most
fixed income securities, but generally is not a factor for U.S.
government obligations. Fixed income securities with the lowest
investment grade rating or that aren't investment grade are more
speculative in nature than securities with higher ratings, and they tend
to be more sensitive to credit risk, particularly during a downturn in
the economy.
o Rebalancing policy - The actual amount in each Fund or category of Funds
may vary from the allocations set by the team. This could continue for
some time.
11
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC] A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Primary
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did.
[BAR CHART APPEARS HERE]
1997 1998 1999
11.42% 11.76% 14.56%
*Year-to-date return as of June 30, 2000: 4.28%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 12.48%
Worst: 3rd quarter 1998: -8.92%
</TABLE>
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500 and the Lehman Aggregate Bond Index.
The S&P 500 is an unmanaged index of 500 widely held common stocks,
weighted by market capitalization. The Lehman Aggregate Bond Index is
an index of fixed income securities issued by the U.S. government and
its agencies, and by corporations. These indices are not available for
investment.
<TABLE>
<CAPTION>
1 year Since inception*
<S> <C> <C>
Primary A Shares 14.56% 12.55%
S&P 500 21.04% 28.06%
Lehman Aggregate Bond Index -0.83% 5.68%
</TABLE>
*The inception date of Primary A Shares is October 15, 1996. The
returns for the indices shown are from inception of Primary A Shares.
12
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC] What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary A Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the Portfolio's assets)
Management fees 0.25%
----
Total annual Portfolio operating expenses 0.25%
====
</TABLE>
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.77% and
1.08% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire in July 31, 2001), and is
based on:
o the amount the Portfolio expects to invest in each Fund, based on the
target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the table
above
o the Portfolio's indirect expenses remain at the average of the range as
shown above for the 1 year example, excluding any fee waivers and/or
reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $120 $379 $658 $1,453
</TABLE>
13
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP Investment Strategies
Team makes the day-to-day investment decisions for the Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 24.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Income and Growth Portfolio
[GRAPHIC] Investment objective
The Portfolio seeks current income and modest growth to protect against
inflation and to preserve purchasing power.
[GRAPHIC] Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares of
Nations Funds Government & Corporate Bond Funds, but may also invest in
Nations Funds Domestic Stock and International Stock Funds, and Nations
Funds Money Market Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations set
for the Portfolio. It bases its allocations on the Portfolio's investment
objective, historical returns for each asset class and on its outlook for
the economy
o chooses individual Funds within each category and the amount they will
allocate to each, looking at each Fund's historical returns, as well as the
expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at least
monthly, and may change these allocations when it believes it's appropriate
to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target allocation,
the team may allocate money coming into the Portfolio to the other Fund
categories
o if there are fewer assets in a Fund category than in the target allocation,
it may allocate money coming into the Portfolio to that Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
14
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Income and Growth Target allocation for each
can invest in: Fund category:
<S> <C>
Large-capitalization domestic stock funds 10-30%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 0-10%
Nations Small Company Fund
International stock funds 0-10%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 50-90%
Nations Short-Term Income Fund
Nations Bond Fund
Nations Strategic Income Fund
Money market fund 0-20%
Nations Prime Fund
</TABLE>
LifeGoal Income and Growth's target allocation for total investments in
domestic stock and international stock funds is 30%. The team can
substitute or add other Funds to this list at any time, including Funds
introduced after the date of this prospectus.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 22 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.765.2668 for a copy.
[GRAPHIC] Risks and other things to consider
LifeGoal Income and Growth Portfolio has the following risks:
o Investment strategy risk - The team use an asset allocation strategy to
try to achieve the highest total return. There is a risk that the mix of
investments will not produce the returns they expect, or that the
Portfolio will fall in value. There is also the risk that the Funds the
Portfolio invests in will not produce the returns the team expects, or
will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that invest
in stocks. The value of the stocks a Fund holds can be affected by
changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the stock
markets, as measured by the S&P 500 and other commonly used indices,
were trading at historically high levels. There can be no guarantee that
these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they trade
less frequently and in lower volumes. These securities may have a higher
potential for gains, but also carry more risk.
15
<PAGE>
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment, difficulties
selling some securities and lack of or limited financial information.
Withholding taxes also may apply to some foreign investments. Funds that
invest in securities of companies in emerging markets have high growth
potential, but can be more volatile than securities in more developed
markets.
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when interest
rates rise than fixed income securities with shorter terms.
o Credit risk - A Fund that invests in fixed income securities could lose
money if the issuer of a fixed income security is unable to pay interest
or repay principal when it's due. Credit risk usually applies to most
fixed income securities, but generally is not a factor for U.S.
government obligations.
o Rebalancing policy - The actual amount in each Fund or category of Funds
may vary from the allocations set by the team. This could continue for
some time.
16
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC] A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Primary
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did.
[BAR CHART APPEARS HERE]
1998 1999
10.17% 6.11%
*Year-to-date return as of June 30, 2000: 1.89%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 6.23%
Worst: 3rd quarter 1998: -2.33%
</TABLE>
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500 and the Lehman Aggregate Bond Index.
The S&P 500 is an unmanaged index of 500 widely held common stocks,
weighted by market capitalization. The Lehman Aggregate Bond Index is
an index of fixed income securities issued by the U.S. government and
its agencies, and by corporations. These indices are not available for
investment.
<TABLE>
<CAPTION>
Since
1 year inception*
<S> <C> <C>
Primary A Shares 6.11% 8.45%
S&P 500 21.04% 28.06%
Lehman Aggregate Bond Index -0.83% 5.68%
</TABLE>
*The inception date of Primary A Shares is October 15, 1996. The
returns for the indices shown are from inception of Primary A Shares.
17
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual fund operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC] What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Primary A Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Portfolio operating expenses
(Expenses that are deducted from the Portfolio's assets)
Management fees 0.25%
----
Total annual Portfolio operating expenses 0.25%
====
</TABLE>
Indirect Expenses
The Portfolio's annual operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.46% and
0.98% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on the
target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Portfolio for the time
periods indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the table
above
o the Portfolio's indirect expenses remain at the average of the range as
shown above for the 1 year example, excluding any fee waivers and/or
reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $99 $326 $572 $1,275
</TABLE>
18
<PAGE>
About the Nations Funds
The table starting on the next page is a brief overview of the objectives and
principal investments of the Nations Funds in which the LifeGoal Portfolios
invest in. Each Portfolio invests in a different mix of Nations Funds. You'll
find the mix of Nations Funds and target allocations for each Portfolio
starting on page 5.
The team can substitute or add other Funds to this table at any time,
including Funds introduced after the date of this prospectus.
For more information
You'll find more detailed information about each Fund's investment strategies
and risks in its prospectus and in its SAI. Please call us at 1.800.765.2668
for copies.
19
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
-------------------------------------------- ----------------------------------------------------
<S> <C> <C>
Domestic Stock Funds
Nations Value Fund Growth of capital by investing in o at least 65% of its assets in common stocks of
companies that are believed to be U.S. companies. The Fund generally invests in
undervalued. companies in a broad range of industries with
market capitalizations of at least $1 billion and
daily trading volumes of at least $3 million.
------------------------------------------------------------------------------------------------------------------------------------
Nations Blue Chip Fund Long-term capital appreciation through Nations Blue Chip Master Portfolio. The Master
investments in blue chip stocks. Portfolio invests:
o at least 65% of its assets in blue chip stocks
o primarily in blue chip stocks that are included in
the S&P 500 Index
------------------------------------------------------------------------------------------------------------------------------------
Nations Strategic Growth Fund Long-term, after-tax returns by investing o at least 65% of its assets in common stocks of
in a diversified portfolio of common companies selected from most major industry
stocks. sectors
------------------------------------------------------------------------------------------------------------------------------------
Nations Marsico Focused Long-term growth of capital. Nations Marsico Focused Equities Master
Equities Fund Portfolio. The Master Portfolio invests in:
o at least 65% of its assets in common stocks of
large companies. The Master Portfolio, which is
non-diversified, generally holds a core position
of 20 to 30 common stocks
o up to 25% of its assets in foreign securities
------------------------------------------------------------------------------------------------------------------------------------
Nations Small Company Fund Long-term capital growth by investing o at least 65% of its assets in companies with a
primarily in equity securities. market capitalization of $1 billion or less. The
Fund usually holds 75 to 130 securities, which
include common stocks, preferred stocks and
convertible securities like warrants, rights and
convertible debt
------------------------------------------------------------------------------------------------------------------------------------
International Stock Funds
Nations International Value Fund Long-term capital appreciation by Nations International Value Master Portfolio. The
investing primarily in equity securities of Master Portfolio invests:
foreign issuers, including emerging o at least 65% of its assets in foreign companies
markets countries. anywhere in the world that have a market
capitalization of more than $1 billion at the time
of investment. The Fund typically invests in at
least three countries other than the United
States at any one time
o primarily in common stocks, preferred stocks,
convertible securities, either directly or
indirectly through closed-end investment
companies and depositary receipts
------------------------------------------------------------------------------------------------------------------------------------
Nations International Equity Fund Long-term capital growth by investing Nations International Equity Master Portfolio. The
primarily in equity securities of Master Portfolio invests:
non-United States companies in Europe, o at least 65% of its assets in established
Australia, the Far East and other regions, companies located in at least three countries
including developing countries. other than the United States. The investment
managers select countries, including emerging
market or developing countries, that they
believe have the potential for growth
o primarily in equity securities, which may
include equity interests in foreign investment
funds or trusts, convertible securities, real
estate investment trust securities and
depositary receipts
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
------------------------------------------- ---------------------------------------------------
<S> <C> <C>
Government & Corporate Bond Funds
Nations Short-Term Income Fund High current income consistent with o at least 65% of its total assets in investment
minimal fluctuations of principal. grade fixed income securities. The team may
choose unrated securities if it believes they are
of comparable quality to investment grade
securities at the time of investment
o corporate debt securities, including bonds,
notes and debentures, mortgage-related
securities issued by governments, asset-backed
securities or U.S. government obligations
------------------------------------------------------------------------------------------------------------------------------------
Nations Bond Fund Total return by investing in investment o at least 65% of its assets in investment grade
grade fixed income securities. fixed income securities. The portfolio
management team may choose unrated
securities if it believes they are of comparable
quality to investment grade securities at the
time of investment
o corporate debt securities, including bonds,
notes and debentures, U.S. government
obligations, foreign debt securities
denominated in U.S. dollars, mortgage-related
securities, asset-backed securities or municipal
securities
------------------------------------------------------------------------------------------------------------------------------------
Nations Strategic Income Fund Total return with an emphasis on current o at least 65% of its assets in investment grade
income by investing in a diversified debt securities, including corporate debt
portfolio of fixed income securities. securities, U.S. government obligations, foreign
debt securities denominated in U.S. dollars or
foreign currencies, and mortgage-related
securities issued by governments and
non-government issuers
o up to 35% of its assets in lower-quality fixed
income securities ("junk bonds" or "high yield
bonds") rated "B"or better by Moody's or S&P.
The portfolio management team may choose
unrated securities if it believes they are of
comparable quality at the time of investment
------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund
Nations Prime Fund Maximization of current income to the o money market instruments, including
extent consistent with the preservation commercial paper, bank obligations, short-term
of capital and the maintenance of debt securities, guaranteed investment
liquidity. contracts, short-term taxable municipal
securities, repurchase agreements secured by
first-tier securities or U.S. government
obligations
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
[GRAPHIC] Other important information
[GRAPHIC]
You'll find specific information about each Portfolio's principal
investments, strategies and risks in the descriptions starting on
page 5.
The following are some other risks and information you should consider before
you invest:
o Changing investment objectives and policies - The investment objective
and certain investment policies of any Portfolio or Fund can be changed
without shareholder approval. Other investment policies may be changed
only with shareholder approval.
o Holding other kinds of investments - The Portfolios or any Fund may hold
investments that aren't part of their principal investment strategies.
Please refer to the SAI for more information. The portfolio managers or
management team can also choose not to invest in specific securities
described in this prospectus and in the SAI.
o Foreign investment risk - Funds that invest in foreign securities may be
affected by changes in currency exchange rates and the costs of
converting currencies; foreign government controls on foreign
investment, repatriation of capital, and currency and exchange; foreign
taxes; inadequate supervision and regulation of some foreign markets;
difficulties selling some investments, which may increase volatility;
different settlement practices or delayed settlements in some markets;
difficulty getting complete or accurate information about foreign
companies; less strict accounting, auditing and financial reporting
standards than those in the U.S.; political, economic or social
instability; and difficulty enforcing legal rights outside the U.S.
o Investing defensively - A Portfolio may temporarily hold up to 100% of
its assets in Nations Prime Fund, a money market fund, to try to protect
it during a market or economic downturn or because of political or other
conditions. A Portfolio may not achieve its investment objective while
it is investing defensively.
o Securities lending program - A Fund may lend portfolio securities to
approved broker-dealers or other financial institutions on a fully
collateralized basis in order to earn additional income. There may be
delays in receiving additional collateral after the loan is made or in
recovering the securities loaned.
o Portfolio turnover - A Portfolio or Fund that replaces -- or turns over
-- more than 100% of its investments in a year is considered to trade
frequently. Frequent trading can result in larger distributions of
short-term capital gains to shareholders. These gains are taxable at
higher rates than long-term capital gains. Frequent trading can also
mean higher brokerage and other transaction costs, which could reduce
the Portfolio's returns. The Portfolios generally buy securities for
capital appreciation, investment income, or both, and don't engage in
short-term trading. You'll find the portfolio turnover rate for each
Portfolio in Financial highlights.
22
<PAGE>
o Proposed reorganization - As of the date of this prospectus, it is
anticipated that management will propose a reorganization of each
Nations LifeGoal Portfolio into a newly created shell Portfolio that is
substantially identical to the existing Portfolio. The principal effect
of these reorganizations would be to redomicile the Portfolios in
Delaware, under a Delaware business trust structure that management
believes provides greater flexibility and efficiency in certain
corporate and organizational matters. If approved and recommended by the
Nations Funds Boards, shareholders will be asked to consider and vote on
an Agreement and Plan of Reorganization at special shareholders
meetings. If shareholders approve this Plan, the reorganizations would
likely occur in the second quarter of 2001.
[GRAPHIC]
Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
[GRAPHIC] How the Portfolios are managed
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds Family, including the Portfolios described in this prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation.
Nations Funds pays BAAI an annual fee for its investment advisory services.
The fee is calculated as a percentage of the average daily net assets of each
Portfolio and is paid monthly. BAAI uses part of this money to pay the
investment sub-adviser for the services it provides to each Portfolio. BAAI
has also agreed to pay all other Portfolio expenses, except taxes, brokerage
fees and commissions, extraordinary expenses, and any distribution (12b-1),
shareholder servicing or shareholder administration fees.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Portfolios' last fiscal
year:
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum Actual fee
advisory paid last
fee fiscal year
<S> <C> <C>
Nations LifeGoal Growth Portfolio 0.25% 0.25%
Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25%
Nations LifeGoal Income and Growth Portfolio 0.25% 0.25%
</TABLE>
23
<PAGE>
Investment sub-advisers
Nations Funds and BAAI engage one or more investment sub-advisers for each
Portfolio to make day-to-day investment decisions for the Portfolio. BAAI
retains ultimate responsibility (subject to Board oversight) for overseeing
the sub-advisers and evaluates the Portfolios' needs and available
sub-advisers' skills and abilities on an ongoing basis. Based on its
evaluations, BAAI may at times recommended to a Portfolio's Board that the
Portfolio:
o change, add or terminate one or more sub-advisers;
o continue to retain a sub-adviser even though the sub-adviser's ownership or
corporate structure has changed; or
o materially change a sub-advisory agreement with a sub-adviser.
Applicable law requires a Portfolio to obtain shareholder approval in order to
act on most of these types of recommendations, even if the Portfolio's Board
has approved the proposed action and believes that the action is in
shareholders' best interests. BAAI and the Portfolios plan to apply for relief
from the SEC to permit the Portfolios to act on many of BAAI's recommendations
with approval only by the Portfolios' Board and not by Portfolios
shareholders. BAAI or a Portfolio would inform the Portfolio's shareholders of
any actions taken in reliance on this relief. Until BAAI and the Portfolios
obtain the relief, each Portfolio will continue to submit these matters to
shareholders for their approval to the extent required by applicable law.
[GRAPHIC]
Banc of America
Capital Management, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Banc of America Capital Management, Inc.
BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank
of America. Its management expertise covers all major domestic asset classes,
including equity and fixed income securities and money market instruments.
Currently managing more than $120 billion, BACAP has over 200 institutional
clients and is sub-adviser to more than 50 mutual funds in the Nations Funds
Family. BACAP generally takes a team approach to investment management. Each
team or individual portfolio manager has access to the latest technology and
analytical resources.
BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's
Investment Strategies Team is responsible for making the day-to-day investment
decisions for each Portfolio.
BACAP is also the investment sub-adviser to the Nations Funds that appear in
the table below. The table tells you which internal BACAP asset management
team is responsible for making the day-to-day investment decisions for each
Fund.
24
<PAGE>
<TABLE>
<CAPTION>
Fund BACAP Team
<S> <C>
Nations Value Fund Value Strategies Team
Nations Small Company Fund SmallCap Strategies Team
Nations Short-Term Income Fund Fixed Income Management Team
Nations Bond Fund Fixed Income Management Team
Nations Strategic Income Fund Fixed Income Management Team
Nations Prime Fund Taxable Money Market Management Team
Nations Strategic Growth Fund Growth Strategies Team
</TABLE>
Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the underlying Nations Funds in which the
Portfolios invest. These sub-advisers function under the supervision of BAAI
and the Boards of Nations Funds.
[GRAPHIC]
Marsico Capital
Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado 80202
Marsico Capital Management, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas
F. Marsico in September 1997. It is a registered investment adviser,
specializing in large capitalization stocks, and currently has over $16
billion in assets under management.
Marsico Management Holdings, LLC, a wholly-owned subsidiary of Bank of America
Corporation, indirectly owns 50% of the equity of Marsico Capital.
On June 28, 2000, Bank of America announced its intention to purchase the
remaining 50% equity interest in Marsico Capital. Under applicable law, the
change in ownership that would result from this purchase would terminate
Marsico Capital's investment sub-advisory agreements with the Nations Funds.
Shareholders of Nations Marsico Focused Equities Fund must approve a new
investment sub-advisory agreement in order for Marsico Capital to continue to
serve as investment sub-adviser to the Fund. It is anticipated that a special
meeting of shareholders would be called in the Spring of 2001 to seek this
approval.
Marsico Capital is the investment sub-adviser to Nations Marsico Focused
Equities Master Portfolio.
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment
decisions for the Master Portfolio. Mr. Marsico was an executive vice
president and portfolio manager at Janus Capital Corporation from 1988 until
he formed Marsico Capital in September 1997. He has more than 20 years of
experience as a securities analyst and portfolio manager.
25
<PAGE>
[GRAPHIC]
Brandes Investment
Partners, L.P.
12750 High Bluff Drive
San Diego, California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 53 investment
professionals who manage more than $40 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' Large Cap Investment Committee is responsible for making
the day-to-day investment decisions for the Master Portfolio.
[GRAPHIC]
Chicago Equity Partners LLC
180 North LaSalle
Suite 3800
Chicago, Illinois 60601
Chicago Equity Partners LLC
Chicago Equity is a registered investment adviser and is owned by the firm's
senior management. Chicago Equity is the investment sub-adviser to Nations
Blue Chip Master Portfolio.
Chicago Equity's Equity Management Team is responsible for making the
day-to-day investment decisions for Nations Blue Chip Master Portfolio.
[GRAPHIC]
Gartmore Global Partners
Gartmore House
8 Fenchurch Place
London EC3M 4PH, England
Gartmore Global Partners
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $1 billion in assets.
Gartmore is a general partnership which is an indirect wholly-owned subsidiary
of Nationwide Mutual Insurance Company.
Gartmore generally follows a growth philosophy, which is reflected in its
active management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International
Equity Master Portfolio.
Gartmore's portion of Nations International Equity Master Portfolio is
co-managed by five portfolio managers:
Christopher Palmer has been responsible since May 1999 for investments in
developing countries, and has been the principal portfolio manager of Nations
Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a
senior investment manager on the Gartmore Emerging Markets Team. Before he
joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment
bank, in its Mexico City and Hong Kong offices, and managed global
derivatives, credit and counterparty credit risk as vice president in the
Institutional Credit Department of Bear Stearns & Co. He graduated from
Colgate University in 1986 with a BA Honors degree in History and completed an
MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA
designation by the Association of Investment Management and Research in 1993.
Seok Teoh has been responsible since June 1998 for investments in Asia. Ms.
Teoh has been with Gartmore since 1990 as the London based manager of its Far
East Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms.
Teoh is native to Singapore and is fluent in Mandarin and Cantonese. She
received an Economics degree from the University of Durham.
26
<PAGE>
Nick Reid has been responsible (or has shared responsibility) for investments
in Japan since August 1999. He has been investment manager for the Gartmore
Japanese Equities Team since he joined Gartmore in 1994 and has specific
responsibility for managing retail funds. Before he joined Gartmore, Mr. Reid
was a United Kingdom Smaller Companies Analyst with Panmure Gordon and a fund
manager covering Japanese and other Asian markets with Refuge Assurance. He
graduated from Cambridge University in 1989 with an honors degree in History.
Mr. Reid is also an associate member of the Institute of Investment Management
and Research.
Stephen Jones has been responsible for investments in Europe since 1998. He is
also head of Gartmore European Equities. Mr. Jones joined Gartmore in 1994 and
was appointed head of the European equity team in 1995. He began his career at
The Prudential in 1984, and became a European equities investment manager in
1987, focusing on France, Belgium and Switzerland. He graduated from
Manchester University in 1984 with an honors degree in Economics.
Stephen Watson has been responsible since June 1998 for allocating assets
among the various regions, and for determining investments in regions not
covered by the other portfolio managers. He was the sole portfolio manager of
Nations International Equity Fund from February 1995 to June 1998. Mr. Watson
joined Gartmore in 1993 as a global fund manager, and is the chief investment
officer of Gartmore Global Partners and a member of Gartmore's global policy
group. Before joining Gartmore, he was a director and global fund manager with
James Capel Fund Managers, London, as well as client service manager for
international clients. He was in Capel-Cure Myers' portfolio management
division from 1980 to 1987, and began his career in 1976 with Samuel Motagu.
He is a member of the Securities Institute.
[GRAPHIC]
INVESCO Global Asset
Management (N.A.), Inc.
1360 Peachtree Street, N.E.
Atlanta, Georgia 30309
INVESCO Global Asset Management (N.A.), Inc.
INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial
holding company located in London.
INVESCO Global is one of the three investment sub-advisers to Nations
International Equity Master Portfolio. INVESCO's International Equity
Portfolio Management Team is responsible for making the day-to-day investment
decisions for its portion of the Master Portfolio.
[GRAPHIC]
Putnam Investment
Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Putnam Investment Management, Inc.
Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Master
Portfolio.
27
<PAGE>
[GRAPHIC]
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Other service providers
The Portfolios are distributed and co-administered by Stephens Inc., a
registered broker/dealer. Stephens does not receive any fees for the
administrative services it provides to the Portfolios.
BAAI is also co-administrator of the Portfolios, and assists in overseeing the
administrative operations of the Funds.
BAAI and Stephens may pay amounts from their own assets to selling or
servicing agents of the Funds for services they provide.
[GRAPHIC]
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
PFPC Inc. (PFPC) is the transfer agent for the Portfolios' shares. Its
responsibilities include processing purchases, sales and exchanges,
calculating and paying distributions, keeping shareholder records, preparing
account statements and providing customer service.
28
<PAGE>
About your investment
--------------------------------------------------------------------------------
[GRAPHIC]
When you sell shares of a mutual fund, the fund is effectively
"buying" them back from you. This is called a redemption.
[GRAPHIC]
A business day is any day that the New York Stock Exchange (NYSE)
is open. A business day ends at the close of regular trading on
the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes
early, the business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
[GRAPHIC] Buying, selling and exchanging shares
This prospectus offers Primary A Shares of the Portfolios. Here are some
general rules about this class of shares:
o Primary A Shares are available to certain financial institutions and
intermediaries for their own accounts, and for certain client accounts for
which they act as a fiduciary, agent or custodian. These include:
o Bank of America and certain of its affiliates
o certain other financial institutions and intermediaries, including
financial planners and investment advisers
o institutional investors
o charitable foundations
o endowments
o other Funds in the Nations Funds Family
o The minimum initial investment is $250,000. Financial institutions or
intermediaries can total the investments they make on behalf of their
clients to meet the minimum initial investment amount. Client accounts for
which the financial institution or intermediary no longer acts as
fiduciary, agent or custodian may no longer be eligible to purchase or hold
Primary A Shares.
o There is no minimum amount for additional investments.
o There are no sales charges for buying, selling or exchanging these shares.
You'll find more information about buying, selling and exchanging Primary A
Shares on the pages that follow. You should also ask your financial
institution or intermediary about its limits, fees and policies for buying,
selling and exchanging shares, which may be different from those described
here, and about its related programs and services.
The Portfolios also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. Please contact your
investment professional, or call us at 1.800.765.2668 if you have any
questions, or you need help placing an order.
How shares are priced
All transactions are based on the price of a Portfolio's shares -- or its net
asset value per share. We calculate net asset value per share for each class
of each Portfolio at the end of each business day. The net asset value per
share of a Portfolio is based on the net asset value per share of the Nations
Funds the Portfolio invests in.
We calculate the net asset value for each class of a Fund by determining the
value of the Fund's assets in the class and then subtracting its liabilities.
Next, we divide this amount by the number of shares that investors are holding
in the class.
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<PAGE>
Valuing securities in an underlying Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, or the value of a security has been
materially affected by events occurring after a foreign exchange closes, we'll
base the price of a security on its fair value. When a Fund uses fair value to
price securities it may value those securities higher or lower than another
fund that uses market quotations to price the same securities. We use the
amortized cost method, which approximates market value, to value short-term
investments maturing in 60 days or less. International markets may be open on
days when U.S. markets are closed. The value of foreign securities owned by a
Fund could change on days when Fund shares may not be bought or sold.
How orders are processed
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, PFPC or their agents before the end of a business day
(usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive
that day's net asset value per share. Orders received after the end of a
business day will receive the next business day's net asset value per share.
The business day that applies to your order is also called the trade date. We
may refuse any order to buy or exchange shares. If this happens, we'll return
any money we've received.
[GRAPHIC] Buying shares
Here are some general rules for buying shares:
o Investors buy Primary A Shares at net asset value per share.
o If we don't receive payment within three business days of receiving
an order, we'll refuse the order. We'll return any payment received
for orders that we refuse.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for ensuring that we receive
payment on time.
o Shares purchased are recorded on the books of the Portfolio. We
don't issue certificates.
o Financial institutions and intermediaries are responsible for
recording the beneficial ownership of the shares of their clients,
and for reporting this ownership on account statements they send to
their clients.
[GRAPHIC] Selling shares
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire within
three business days after Stephens, PFPC or their agents receive the
order.
o If you paid for your shares with a check that wasn't certified,
we'll hold the sale proceeds when you sell those shares for at least
15 days after the trade date of the purchase, or until the check has
cleared, whichever is later.
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<PAGE>
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for depositing the sale
proceeds to their accounts on time.
o Under certain circumstances allowed under the Investment Company Act
of 1940 (1940 Act), we can pay you in securities or other property
when you sell shares.
o We can delay payment of the sale proceeds for up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information about these restrictions, please contact your retirement
plan administrator.
We may sell shares:
o if the value of an investor's account falls below $500. We'll
provide 60 days notice in writing if we're going to do this
o if a financial institution or intermediary tells us to sell the
shares for a client under arrangements it has made with its clients
o under certain other circumstances allowed under the 1940 Act
[GRAPHIC]
You should make sure you understand the investment objective and
principal investment strategies of the Portfolio or Fund you're
exchanging into. Please read its prospectus carefully.
[GRAPHIC]
Exchanging shares
Investors can sell shares of a Portfolio to buy shares of another
Portfolio or Nations Fund. This is called an exchange, and may be
appropriate if investment goals or tolerance for risk change.
Here's how exchanges work:
o Investors can exchange Primary A Shares of a Portfolio for Primary A
Shares of any other Portfolio or Nations Fund. In some cases, the
only Money Market Fund option is Trust Class Shares of Nations
Reserves Money Market Funds.
o The rules for buying shares of a Portfolio or Fund, including any
minimum investment requirements, apply to exchanges into that
Portfolio or Fund.
o Exchanges can only be made into a Portfolio or Fund that is legally
sold in the investor's state of residence.
o Exchanges can generally only be made into a Portfolio or Fund that
is accepting investments.
o We may limit the number of exchanges that can be made within a
specified period of time.
o We may change or cancel the right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
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<PAGE>
[GRAPHIC] Distributions and taxes
[GRAPHIC]
The power of compounding
Reinvesting your distributions buys you more shares of a
Portfolio -- which lets you take advantage of the potential for
compound growth.
Putting the money you earn back into your investment means it, in
turn, may earn even more money. Over time, the power of
compounding has the potential to significantly increase the value
of your investment. There is no assurance, however, that you'll
earn more money if you reinvest your distributions.
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on common stocks.
o A fund can also have capital gain if the value of its investments increases.
If a fund sells an investment at a gain, the gain is realized. If a fund
continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The
Portfolios intend to pay out a sufficient amount of their income and capital
gain to their shareholders so the Portfolios won't have to pay any income tax.
When a Portfolio makes this kind of a payment, it's split equally among all
shares, and is called a distribution.
All of the Portfolios distribute net investment income quarterly, and any net
realized capital gain at least once a year.
The distribution you receive is based on the number of shares you hold on the
record date, which is usually the day the distribution is declared (daily
dividend Funds) or the day before the distribution is declared (all other
Funds). Shares are eligible to receive distributions from the settlement date
(daily dividend Funds) or the trade date (all other Funds) of the purchase up
to and including the day before the shares are sold.
Different share classes of a Portfolio usually pay different distribution
amounts, because each class has different expenses. Each time a distribution
is made, the net asset value per share of the share class is reduced by the
amount of the distribution.
We'll automatically reinvest distributions in additional shares of the same
Portfolio unless you tell us you want to receive your distributions in cash.
You can do this by writing to us at the address on the back cover or by
calling us at 1.800.765.2668.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll normally pay any distribution that applies to those
shares in cash within five business days after the sale was made.
If you buy shares of a Portfolio shortly before it makes a distribution, you
will, in effect, receive part of your purchase back in the distribution, which
is subject to tax. Similarly, if you buy shares of a Portfolio that holds
securities with unrealized capital gain, you will, in effect, receive part of
your purchase back if and when the Portfolio sells those securities and
distributes the gain. This distribution is also subject to tax. Some
Portfolios have built up, or have the potential to build up, high levels of
unrealized capital gain.
32
<PAGE>
[GRAPHIC]
This information is a summary of how federal income taxes may
affect your investment in the Funds. It is not intended as a
substitute for careful tax planning. You should consult with your
own tax adviser about your situation, including any foreign, state
and local taxes that may apply.
[GRAPHIC]
For more information about taxes, please see the SAI.
How taxes affect your investment
Distributions that come from net investment income and any net short-term
capital gain over net long-term capital loss generally are taxable to you as
ordinary income. A portion of such distributions to corporate shareholders may
qualify for the dividends received deduction.
Distributions that come from net capital gain (generally the excess of net
long-term capital gain over net short-term capital loss) generally are taxable
to you as net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the
Portfolio. However, any distributions declared in October, November or
December of one year and distributed in January of the following year will be
taxable as if they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts to be paid for in
securities or other property and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax (at a rate of 30%,
or a lower rate if a treaty applies) on distributions paid to foreign
shareholders.
Taxation of redemptions and exchanges
Your redemptions (including redemptions paid in securities or other property)
and exchanges of Portfolio shares will usually result in a taxable capital
gain or loss to you, depending on the amount you receive for your shares (or
are deemed to receive in the case of exchanges) and the amount you paid (or
are deemed to have paid) for them.
33
<PAGE>
[GRAPHIC] Financial highlights
The financial highlights table is designed to help you understand how the
Portfolios have performed for the past five years or, if shorter, the period
of the Portfolio's operations. Certain information reflects financial results
for a single Portfolio share. The total investment return line indicates how
much an investment in the Portfolio would have earned, assuming all dividends
and distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. The
independent accountants' report and Nations Funds financial statements are
incorporated by reference into the SAI. Please see the back cover to find out
how you can get a copy.
34
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio For a Share outstanding throughout each period
Year ended Year ended Year ended Period ended
Primary A Shares 03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.15 $ 12.49 $ 10.15 $ 10.06
Net investment income 0.04 0.04 0.08 0.12
Net realized and unrealized gain on investments 3.88 0.31 2.87 0.09
Net increase in net assets resulting from investment
operations 3.92 0.35 2.95 0.21
Distributions:
Dividends from net investment income -- -- ( 0.01) ( 0.12)
Distributions in excess of net investment income ( 0.18) ( 0.09) ( 0.39) --
Distributions from net realized capital gains ( 0.39) ( 0.60) ( 0.21) --
Total dividends and distributions ( 0.57) ( 0.69) ( 0.61) ( 0.12)
Net asset value, end of period $ 15.50 $ 12.15 $ 12.49 $ 10.15
Total return++ 32.94% 3.04% 29.80% 2.10%
===================================================== ======= ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $15,265 $4,291 $ 289 $ 929
Ratio of operating expenses to average net
assets+++ 0.25% 0.25% 0.25% 0.25%+
Ratio of net investment income to average net
assets 0.34% 0.46% 0.65% 1.11%+
Portfolio turnover rate 161% 159% 69% 25%
</TABLE>
* LifeGoal Growth Portfolio Primary A Shares
commenced investment operations on October 2, 1996.
Shares were offered to the public on October 15,
1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying Funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
<TABLE>
<CAPTION>
LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period
Year ended Year ended Year ended Period ended
Primary A Shares 03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.80 $ 10.92 $ 9.95 $ 10.05
Net investment income 0.36 0.26 0.33 0.19
Net realized and unrealized gain/(loss) on
investments 1.54 0.23 1.74 ( 0.10)
Net increase/(decrease) in net assets resulting from
investment operations 1.90 0.49 2.07 0.09
Distributions:
Dividends from net investment income ( 0.40) ( 0.28) ( 0.28) ( 0.19)
Distributions in excess of net investment income ( 0.04) -- ( 0.32) --
Distributions from net realized capital gains ( 0.29) ( 0.33) ( 0.50) --
Total dividends and distributions ( 0.73) ( 0.61) ( 1.10) ( 0.19)
Net asset value, end of period $ 11.97 $ 10.80 $ 10.92 $ 9.95
Total return++ 18.34% 4.77% 21.74% 0.90%
===================================================== ======= ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $13,325 $14,844 $ 103 $2,114
Ratio of operating expenses to average net
assets+++ 0.25% 0.25% 0.25% 0.25%+
Ratio of net investment income to average net
assets 3.37% 2.77% 2.87% 3.94%+
Portfolio turnover rate 124% 121% 94% 1%
</TABLE>
* LifeGoal Balanced Growth Portfolio Primary A
Shares commenced investment operations on October 2,
1996. Shares were offered to the public on October
15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying Funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
35
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Income and Growth Portfolio For A Share outstanding throughout each period
Year ended Year ended Year ended Period ended
Primary A Shares 03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.86 $ 10.70 $ 9.97 $ 10.03
Net investment income 0.49 0.35 0.43 0.32
Net realized and unrealized gain/(loss) on
investments 0.02 0.37 0.89 ( 0.06)
Net increase in net assets resulting from investment
operations 0.51 0.72 1.32 0.26
Distributions:
Dividends from net investment income ( 0.51) ( 0.36) ( 0.40) ( 0.32)
Distributions in excess of net investment income -- -- ( 0.12) --
Distributions from net realized capital gains ( 0.23) ( 0.20) ( 0.07) --
Total dividends and distributions ( 0.74) ( 0.56) ( 0.59) ( 0.32)
Net asset value, end of period $ 10.63 $ 10.86 $ 10.70 $ 9.97
Total return++ 4.91% 6.98% 13.56% 2.59%
===================================================== ======= ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,736 $8,489 $ 476 $ 223
Ratio of operating expenses to average net
assets+++ 0.25% 0.25% 0.25% 0.25%+
Ratio of net investment income to average net
assets 4.78% 3.99% 4.17% 6.34%+
Portfolio turnover rate 96% 107% 64% 2%
</TABLE>
* LifeGoal Income and Growth Portfolio Primary A
Shares commenced investment operations on October 2,
1996. Shares were offered to the public on October
15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying Funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
36
<PAGE>
[GRAPHIC]
This glossary includes explanations of the important terms that
may be used in this prospectus. Some of the terms explained may
apply to Nations Funds not included in this prospectus.
[GRAPHIC] Terms used in this prospectus
Asset-backed security - a debt security that gives you an interest in a pool
of assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.
Average dollar-weighted maturity - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.
Bank obligation - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.
Capital gain or loss - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
Cash equivalents - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's
Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).
Commercial paper - a money market instrument issued by a large company.
Common stock - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
Convertible debt - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
Convertible security - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.
Corporate obligation - a money market instrument issued by a corporation or
commercial bank.
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<PAGE>
Debt security - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
Depositary receipts - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates
traded in U.S. markets representing an interest of a foreign company. They
were created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.
Dividend yield - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
Duration - a measure used to estimate a security's or portfolio's sensitivity
to changes in interest rates. For example, if interest rates rise by one
percentage point, the share price of a fund with a duration of five years
would decline by about 5%. If interest rates fall by one percentage point, the
fund's share price would rise by about 5%.
Equity security - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.
First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest
short-term rating from a nationally recognized statistical rating organization
(NRSRO) or if unrated, is determined by the fund's portfolio management team
to be of comparable quality, or is a money market fund issued by a registered
investment company, or is a government security.
Fixed income security - an intermediate to long-term debt security that
matures in more than one year.
Foreign security - a debt or equity security issued by a foreign company or
government.
Fundamental analysis - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
Futures - a contract to buy or sell an asset or an index of securities at a
specified price on a specified future date. The price is set through a futures
exchange.
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<PAGE>
Investment grade - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other NRSROs) based on the issuer's ability to pay interest and repay
principal on time. The portfolio management team may consider an unrated debt
security to be investment grade if the team believes it is of comparable
quality. Please see the SAI for more information about credit ratings.
Lehman Aggregate Bond Index - an index made up of the Lehman
Government/Corporate Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index. These indices include U.S. government agency
and U.S. Treasury securities, corporate bonds and mortgage-backed securities.
All dividends are reinvested.
Liquidity - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
Money market instrument - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
Mortgage-backed security or Mortgage-related security - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.
Municipal security (obligation) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income from these
securities is exempt from federal income taxes and is generally exempt from
state taxes if you live in the state that issued the security. If you live in
the municipality that issued the security, interest income may also be exempt
from local taxes.
Non-diversified - a fund that holds securities of fewer issuers than other
kinds of funds. Non-diversified funds tend to have greater price swings than
more diversified funds because events affecting one or more of its securities
may have a disproportionately large effect on the fund.
Preferred stock - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the
company's remaining assets before common shareholders and after bondholders
and other creditors.
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<PAGE>
Quantitative analysis - an analysis of financial information about a company
or security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
Real Estate Investment Trust (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans or interests.
Repurchase agreement - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.
Right - a temporary privilege allowing investors who already own a common
stock to buy additional shares directly from the company at a specified price
or formula.
S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.
Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security
that is an eligible investment for money market funds, but is not a first-tier
security.
Senior security - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
Settlement date - the date on which an order is settled either by payment or
delivery of securities.
Trade date - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. government obligations - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
U.S. Treasury obligation - a debt security issued by the U.S. Treasury.
Warrant - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1) S&P has not reviewed any stock included in the S&P 500 for its investment
merit. S&P determines and calculates its index independently of the Funds
and is not a sponsor or affiliate of the Funds. S&P gives no information and
makes no statements about the suitability of investing in the Funds or the
ability of its index to track stock market performance. S&P makes no
guarantees about the index, any data included in it and the suitability of
the index or its data for any purpose. "Standard and Poor's" and "S&P 500"
are trademarks of The McGraw-Hill Companies, Inc.
40
<PAGE>
[GRAPHIC] Where to find more information
You'll find more information about the LifeGoal Portfolios in the following
documents:
Annual and semi-annual reports
The annual and semi-annual reports contain information about
Portfolio investments and performance, the financial statements and the
independent accountants' reports. The annual report also includes a
discussion about the market conditions and investment strategies that
had a significant effect on each Portfolio's performance during the
period covered.
[GRAPHIC] Statement of Additional Information
The SAI contains additional information about the Portfolios and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other
information about the Portfolios and make shareholder inquiries by
contacting Nations Funds:
By telephone: 1.800.765.2668
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nations-funds.com
Information about the Portfolios can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the
SEC at 1-202-942-8090. The reports and other information about the
Portfolios are available on the EDGAR Database on the SEC's Internet
site at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
SEC file number:
Nations LifeGoal Funds, Inc., 811-07745
LGPROPA-8/00 [NATIONS FUNDS LOGO]
<PAGE>
[GRAPHIC]
LifeGoal Portfolios
Prospectus -- Investor A, B and C Shares
August 1, 2000
LifeGoal Growth Portfolio
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
-----------------
Not FDIC Insured
-----------------
May Lose Value
-----------------
No Bank Guarantee
-----------------
[NATIONS FUNDS LOGO APPEARS HERE]
<PAGE>
An overview of the Portfolios
--------------------------------------------------------------------------------
[GRAPHIC]
Terms used in this prospectus
In this prospectus, we, us and our refer to the Nations Funds
family (Nations Funds or Nations Funds Family). Some other
important terms we've used may be new to you. These are printed in
italics where they first appear in a section and are described in
Terms used in this prospectus.
[GRAPHIC]
You'll find Terms used in
this prospectus on page 59.
Your investment in a Portfolio is not a bank deposit and is not
insured or guaranteed by Bank of America, N. A. (Bank of America),
the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Your investment may lose money.
Affiliates of Bank of America are paid for the services they
provide to the Portfolios and the underlying Funds.
This booklet, which is called a prospectus, tells you about Nations Funds
LifeGoal Portfolios. Please read it carefully because it contains information
that's designed to help you make informed investment decisions.
Unlike traditional mutual funds, which invest in individual securities, the
Portfolios invest in a mix of Nations Funds Domestic Stock, International
Stock, Government & Corporate Bond and Money Market Funds using an asset
allocation approach. This kind of mutual fund is sometimes called a "fund of
funds."
About asset allocation
Asset allocation is the process of creating a diversified portfolio by
investing in different asset classes -- for example, equity securities, fixed
income securities and money market instruments -- in varying proportions.
The mix of asset classes and how much is invested in each may be the most
important factor in how a Portfolio performs and the amount of risk involved.
Each asset class, and market segments within a class, like large, mid- and
small capitalization stocks, has different return and risk characteristics,
and reacts in different ways to changes in the economy. An investment approach
that combines asset classes and market segments may help to reduce overall
Portfolio volatility.
About the Portfolios
Each Portfolio has its own asset allocation strategy, which gives it
distinctive risk/return characteristics. The performance of each Portfolio
depends on many factors, including its allocation strategy and the performance
of the Nations Funds it invests in. In general, the more a LifeGoal Portfolio
allocates to Domestic Stock and International Stock Funds, the greater the
potential return and the greater the risk of a decline in share price. The
more a LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the
greater the potential for price stability and the lower the potential return.
There's always a risk, however, that you'll lose money or you may not earn as
much as you expect.
LifeGoal Growth Portfolio focuses on long-term growth by normally allocating
all of its assets to a mix of Funds that invest primarily in equity
securities. Equities have the potential to provide higher returns than many
other kinds of investments, but they also tend to have the highest risk.
LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally
allocating its assets to a balanced mix of Funds that invest in equity and
fixed income securities. Fixed income securities have the potential to
increase in value, because, when interest rates fall, the value of these
securities tends to rise. When interest rates rise, however, the value of
these securities tends to fall. Other things can also affect the value of
fixed income securities.
2
<PAGE>
LifeGoal Income and Growth Portfolio focuses on current income and modest
growth. It normally allocates most of its assets to Funds that invest in fixed
income securities, but may also allocate some assets to Funds that invest in
equity securities. Over time, the return on this Portfolio may be lower than
the return on the other Portfolios.
Is LifeGoal right for you?
When you're choosing a Portfolio to invest in, you should consider things like
your investment goals, how much risk you can accept and how long you're
planning to hold your investment.
The LifeGoal Portfolios may be suitable for you if:
o you have longer-term investment goals
o they're part of a balanced portfolio
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with equity and fixed income securities
o you have short-term investment goals
o you're looking for a regular stream of income
You'll find a discussion of each Portfolio's principal investments, strategies
and risks in the Portfolio descriptions that start on page 5.
For more information
If you have any questions about the Portfolios, please call us at
1.800.321.7854 or contact your investment professional.
You'll find more information about the Portfolios in the Statement of
Additional Information (SAI). The SAI includes more detailed information about
each Portfolio's investments, policies, performance and management, among
other things. Please turn to the back cover to find out how you can get a
copy.
3
<PAGE>
What's inside
--------------------------------------------------------------------------------
[GRAPHIC]
Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to
each of the Portfolios. BAAI is responsible for the overall
management and supervision of the investment management of each
Portfolio. BAAI and Nations Funds have engaged a
sub-adviser -- Banc of America Capital Management, Inc. (BACAP),
which is responsible for the day-to-day investment decisions for
each of the Portfolios.
[GRAPHIC]
You'll find more about
BAAI and BACAP
starting on page 27.
[GRAPHIC]
About the Portfolios
LifeGoal Growth Portfolio 5
Sub-adviser: BACAP
----------------------------------------------------------
LifeGoal Balanced Growth Portfolio 10
Sub-adviser: BACAP
----------------------------------------------------------
LifeGoal Income and Growth Portfolio 16
Sub-adviser: BACAP
----------------------------------------------------------
About the Nations Funds 22
----------------------------------------------------------
Other important information 25
----------------------------------------------------------
How the Portfolios are managed 27
[GRAPHIC]
About your investment
Information for investors
Choosing a share class 32
Buying, selling and exchanging shares 41
How selling and servicing agents are paid 49
Distributions and taxes 51
----------------------------------------------------------
Financial highlights 53
----------------------------------------------------------
Terms used in this prospectus 59
----------------------------------------------------------
Where to find more information back cover
4
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 28.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks capital appreciation through exposure to a variety
of equity market segments.
[GRAPHIC]
Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares
of Nations Funds Domestic Stock and International Stock Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations set
for the Portfolio. It bases its allocations on the Portfolio's investment
objective, historical returns for each asset class and on its outlook for
the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well as
the expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at least
monthly, and may change these allocations when it believes it's
appropriate to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target allocation,
the team may allocate money coming into the Portfolio to the other Fund
categories
o if there are fewer assets in a Fund category than in the target
allocation, it may allocate money coming into the Portfolio to that Fund
category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
5
<PAGE>
LifeGoal Growth Portfolio Target allocation for each
can invest in: Fund category:
Large-capitalization domestic stock funds 40-75%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 15-35%
Nations Small Company Fund
International stock funds 10-30%
Nations International Value Fund
Nations International Equity Fund
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 25 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.321.7584 for a copy.
[GRAPHIC]
Risks and other things to consider
LifeGoal Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
6
<PAGE>
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Investor
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
[BAR CHART APPEARS HERE]
1997 1998 1999
----- ----- -----
14.57% 12.64% 25.61%
*Year-to-date return as of June 30, 2000: 6.34%
Best and worst quarterly returns during this period
Best: 4th quarter 1998: 23.55%
Worst: 3rd quarter 1998: -16.68%
[GRAPHIC]
The Portfolio's returns in this table reflect sales charges. The
index's return does not reflect sales charges.
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500, an unmanaged index of 500 widely
held common stocks, weighted by market capitalization. The index is not
available for investment.
Since
1 year inception*
Investor A Shares 18.37% 15.35%
Investor B Shares 19.64% 12.62%
Investor C Shares 23.68% 16.75%
S&P 500 21.04% 28.31%
*The inception dates of Investor A Shares, Investor B Shares and
Investor C Shares are October 15, 1996, August 12, 1997 and October
15, 1996, respectively. The return for the index shown is from
inception of Investor A Shares.
7
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual portfolio operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases,
as a % of offering price 5.75% none none
Maximum deferred sales charge (load)
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Annual Fund operating expenses
(Expenses that are deducted from the
Portfolio's assets)
Management fees 0.25% 0.25% 0.25%
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00% 1.00%
----- -------- --------
Total annual Fund operating expenses 0.50% 1.25% 1.25%
===== ======== ========
</TABLE>
(1) A 1.00% maximum deferred sales charge applies to investors who buy
$1 million or more of Investor A Shares and sell them within
eighteen months of buying them. Different charges may apply to
purchases made prior to August 1, 1999. Please see page 33 for
details.
(2) This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January
1, 1996 and after July 31, 1997. Please see page 34 for details.
(3) This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 36 for details.
Indirect Expenses
The Portfolio's annual Fund operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.99% and
1.18% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on
the target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider
fees
8
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Portfolio for the time periods indicated and then sell all
of your shares at the end of those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the
table above
o the Portfolio's indirect expenses remain at the average of the
range as shown above for the 1 year example, excluding any fee
waivers and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $727 $1,052 $1,400 $2,377
Investor B Shares $736 $1,034 $1,458 $2,507
Investor C Shares $336 $ 734 $1,258 $2,694
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years
Investor B Shares $236 $734 $1,258 $2,507
Investor C Shares $236 $734 $1,258 $2,694
9
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 28.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Balanced Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks total return through a balanced portfolio of equity
and fixed income securities.
[GRAPHIC]
Investment strategies
The Portfolio normally invests all of its assets in Primary A Shares of
a balanced mix of Nations Funds Domestic Stock, International Stock and
Government & Corporate Bond Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations
set for the Portfolio. It bases its allocations on the Portfolio's
investment objective, historical returns for each asset class and on
its outlook for the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well
as the expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at
least monthly, and may change these allocations when it believes it's
appropriate to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target
allocation, the team may allocate money coming into the Portfolio to the
other Fund categories
o if there are fewer assets in a Fund category than in the target
allocation, it may allocate money coming into the Portfolio to that Fund
category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
10
<PAGE>
LifeGoal Balanced Growth Target allocation for each
Portfolio can invest in: Fund category:
Large-capitalization domestic stock funds 20-40%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 10-20%
Nations Small Company Fund
International stock funds 5-15%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 40-60%
Nations Bond Fund
Nations Strategic Income Fund
The team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 25 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.321.7854 for a copy.
[GRAPHIC]
Risks and other things to consider
LifeGoal Balanced Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
11
<PAGE>
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income
securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value
when interest rates rise than fixed income securities with shorter
terms.
o Credit risk - A Fund that invests in fixed income securities could
lose money if the issuer of a fixed income security is unable to pay
interest or repay principal when it's due. Credit risk usually applies
to most fixed income securities, but generally is not a factor for
U.S. government obligations. Fixed income securities with the lowest
investment grade rating or that aren't investment grade are more
speculative in nature than securities with higher ratings, and they
tend to be more sensitive to credit risk, particularly during a
downturn in the economy.
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
12
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Investor
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses, pricing and sales charges.
[BAR CHART APPEARS HERE]
1997 1998 1999
------ ------ ------
11.20% 11.66% 14.38%
*Year-to-date return as of June 30, 2000: 4.08%
Best and worst quarterly returns during this period
Best: 4th quarter 1998: 12.39%
Worst: 3rd quarter 1998: -8.96%
[GRAPHIC]
The Portfolio's returns in this table reflect sales charges. The
indices' returns do not reflect sales charges.
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500 and the Lehman Aggregate Bond Index.
The S&P 500 is an unmanaged index of 500 widely held common stocks,
weighted by market capitalization. The Lehman Aggregate Bond Index is
an index of fixed income securities issued by the U.S. government and
its agencies, and by corporations. These indices are not available for
investment.
1 year Since inception*
Investor A Shares 7.77% 10.35%
Investor B Shares 8.45% 9.96%
Investor C Shares 12.45% 11.97%
S&P 500 21.04% 28.31%
Lehman Aggregate Bond Index -0.83% 6.24%
*The inception dates of Investor A Shares, Investor B Shares and
Investor C Shares are October 15, 1996, August 13, 1997 and October
15, 1996, respectively. The returns for the indices shown are from
inception of Investor A Shares.
13
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual portfolio operating expenses that are deducted from a
Portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases,
as a % of offering price 5.75% none none
Maximum deferred sales charge (load)
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Annual Fund operating expenses
(Expenses that are deducted from the
Portfolio's assets)
Management fees 0.25% 0.25 % 0.25 %
Distribution (12-b1) and shareholder
servicing fees 0.25% 1.00 % 1.00 %
----- -------- --------
Total annual Fund operating expenses 0.50% 1.25 % 1.25 %
===== ======== ========
</TABLE>
(1) A 1.00% maximum deferred sales charge applies to investors who buy
$1 million or more of Investor A Shares and sell them within
eighteen months of buying them. Different charges may apply to
purchases made prior to August 1, 1999. Please see page 33 for
details.
(2) This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January
1, 1996 and after July 31, 1997. Please see page 34 for details.
(3) This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 36 for details.
Indirect Expenses
The Portfolio's annual Fund operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.77% and
1.08% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on the
target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider fees
14
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Portfolio for the time periods indicated and then sell all
of your shares at the end of those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the
table above
o the Portfolio's indirect expenses remain at the average of the
range as shown above for the 1 year example, excluding any fee
waivers and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $712 $1,006 $1,321 $2,212
Investor B Shares $721 $ 986 $1,378 $2,343
Investor C Shares $321 $ 686 $1,178 $2,532
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years
Investor B Shares $221 $686 $1,178 $2,343
Investor C Shares $221 $686 $1,178 $2,532
15
<PAGE>
[GRAPHIC]
About the sub-adviser
BACAP is this Portfolio's sub-adviser. BACAP's Investment
Strategies Team makes the day-to-day investment decisions for the
Portfolio.
[GRAPHIC]
You'll find more about
BACAP on page 28.
[GRAPHIC]
About the underlying Nations Funds
You'll find more information about the Funds in which the
Portfolio invests, including their objectives and strategies, in
About the Nations Funds and in the SAI.
LifeGoal Income and Growth Portfolio
[GRAPHIC]
Investment objective
The Portfolio seeks current income and modest growth to protect against
inflation and to preserve purchasing power.
[GRAPHIC]
Investment strategies
The Portfolio normally invests most of its assets in Primary A Shares
of Nations Funds Government & Corporate Bond Funds, but may also invest
in Nations Funds Domestic Stock, International Stock and Money Market
Funds.
The team uses asset allocation as its principal investment approach. It:
o allocates assets among Fund categories, within the target allocations set
for the Portfolio. It bases its allocations on the Portfolio's investment
objective, historical returns for each asset class and on its outlook for
the economy
o chooses individual Funds within each category and the amount it will
allocate to each, looking at each Fund's historical returns, as well as the
expected performance of the mix of Funds
o reviews the allocations to Fund categories and individual Funds at least
monthly, and may change these allocations when it believes it's appropriate
to do so
The actual amount in each Fund or category of Funds may vary from the
allocations set by the team, depending on how the Funds perform, and for other
reasons. The team may use various strategies to try to manage how much the
actual amount varies, and for how long. For example:
o if there are more assets in a Fund category than in the target allocation,
the team may allocate money coming into the Portfolio to the other Fund
categories
o if there are fewer assets in a Fund category than in the target allocation,
it may allocate money coming into the Portfolio to that Fund category
The Portfolio normally sells a proportionate amount of the shares it owns in
each Nations Fund to meet its redemption requests.
16
<PAGE>
LifeGoal Income and Growth Target allocation for each
can invest in: Fund category:
Large-capitalization domestic stock funds 10-30%
Nations Value Fund
Nations Blue Chip Fund
Nations Strategic Growth Fund
Nations Marsico Focused Equities Fund
Small-capitalization domestic stock fund 0-10%
Nations Small Company Fund
International stock funds 0-10%
Nations International Value Fund
Nations International Equity Fund
Government & corporate bond funds 50-90%
Nations Short-Term Income Fund
Nations Bond Fund
Nations Strategic Income Fund
Money market fund 0-20%
Nations Prime Fund
LifeGoal Income and Growth Portfolio's target allocation for total
investments in domestic stock and international stock funds is 30%. The
team can substitute or add other Funds to this list at any time,
including Funds introduced after the date of this prospectus.
[GRAPHIC]
You'll find more about
other risks of investing in
this Portfolio starting on
page 25 and in the SAI.
[GRAPHIC]
You'll find detailed information about each Fund's investment
strategies and risks in its prospectus, and in its SAI. Please
call us at 1.800.321.7854 for a copy.
[GRAPHIC]
Risks and other things to consider
LifeGoal Income and Growth Portfolio has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns they expect, or that
the Portfolio will fall in value. There is also the risk that the
Funds the Portfolio invests in will not produce the returns the team
expects, or will fall in value.
o Stock market risk - The Portfolio allocates assets to Funds that
invest in stocks. The value of the stocks a Fund holds can be affected
by changes in U.S. or foreign economies and financial markets, and the
companies that issue the stocks, among other things. Stock prices can
rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and
periods of falling prices. As of the date of this prospectus, the
stock markets, as measured by the S&P 500 and other commonly used
indices, were trading at historically high levels. There can be no
guarantee that these levels will continue.
o Small company risk - The Portfolio allocates assets to Funds that may
invest in smaller companies. Stocks of smaller companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may have
a higher potential for gains, but also carry more risk.
17
<PAGE>
o Foreign investment risk - The Portfolio allocates assets to Funds that
invest in foreign securities. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties selling some securities and lack of or limited financial
information. Withholding taxes may also apply to some foreign
investments. Funds that invest in securities of companies in emerging
markets have high growth potential, but can be more volatile than
securities in more developed markets.
o Interest rate risk - The Portfolio allocates assets to Funds that may
invest in fixed income securities. The prices of fixed income
securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value
when interest rates rise than fixed income securities with shorter
terms.
o Credit risk - A Fund that invests in fixed income securities could
lose money if the issuer of a fixed income security is unable to pay
interest or repay principal when it's due. Credit risk usually applies
to most fixed income securities, but generally is not a factor for
U.S. government obligations.
o Rebalancing policy - The actual amount in each Fund or category of
Funds may vary from the allocations set by the team. This could
continue for some time.
18
<PAGE>
[GRAPHIC]
Many things affect a Portfolio's performance, including market
conditions, the composition of the Portfolio's holdings and
Portfolio expenses.
[GRAPHIC]
A look at the Portfolio's performance
The following bar chart and table show you how the Portfolio has
performed in the past, and can help you understand the risks of
investing in the Portfolio. A Portfolio's past performance is no
guarantee of how it will perform in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Portfolio's Investor
A Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses, pricing and sales charges.
[BAR CHART APPEARS HERE]
1997 1998 1999
----- ------ -----
8.50% 10.25% 6.15%
*Year-to-date return as of June 30, 2000: 1.77%
Best and worst quarterly returns during this period
Best: 4th quarter 1998: 6.25%
Worst: 3rd quarter 1998: -2.38%
[GRAPHIC]
The Portfolio's returns in this table reflect sales charges. The
indices' returns do not reflect sales charges.
Average annual total return as of December 31, 1999
The table shows the Portfolio's average annual total return for each
period, compared with the S&P 500 and the Lehman Aggregate Bond Index.
The S&P 500 is an unmanaged index of 500 widely held common stocks,
weighted by market capitalization. The Lehman Aggregate Bond Index is
an index of fixed income securities issued by the U.S. government and
its agencies, and by corporations. These indices are not available for
investment.
Since
1 year inception*
Investor A Shares 0.01% 6.39%
Investor B Shares 0.53% 5.19%
Investor C Shares 4.28% 7.73%
S&P 500 21.04% 28.31%
Lehman Aggregate Bond Index -0.83% 6.24%
*The inception dates of Investor A Shares, Investor B Shares and
Investor C Shares are October 15, 1996, August 7, 1997 and October 15,
1996, respectively. The returns for the indices shown are from
inception of Investor A Shares.
19
<PAGE>
[GRAPHIC]
There are two kinds of fees -- shareholder fees you pay directly
and annual portfolio operating expenses that are deducted from a
portfolio's assets and from the assets of the Nations Funds the
Portfolio invests in.
[GRAPHIC]
What it costs to invest in the Portfolio
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Portfolio.
<TABLE>
<CAPTION>
Shareholder fees Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases,
as a % of offering price 5.75% none none
Maximum deferred sales charge (load)
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Annual Fund operating expenses
(Expenses that are deducted from the
Portfolio's assets)
Management fees 0.25% 0.25% 0.25%
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00% 1.00%
----- -------- --------
Total annual Fund operating expenses 0.50% 1.25% 1.25%
===== ======== ========
</TABLE>
(1) A 1.00% maximum deferred sales charge applies to investors who buy
$1 million or more of Investor A Shares and sell them within
eighteen months of buying them. Different charges may apply to
purchases made prior to August 1, 1999. Please see page 33 for
details.
(2) This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January
1, 1996 and after July 31, 1997. Please see page 34 for details.
(3) This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 36 for details.
Indirect Expenses
The Portfolio's annual Fund operating expenses include a portion of the
annual Fund operating expenses of the Nations Funds in which the
Portfolio invests. This portion is estimated to be between 0.46% and
0.98% (expressed as a weighted average, including any fee waiver and/or
reimbursement commitments that will expire July 31, 2001), and is based
on:
o the amount the Portfolio expects to invest in each Fund, based on
the target allocation
o each Fund's annualized expense ratio for the period ended March 31,
2000, adjusted as necessary to reflect current service provider
fees
20
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Portfolio's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Portfolio with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Portfolio for the time periods indicated and then sell all
of your shares at the end of those periods
o you reinvest all dividends and distributions in the Portfolio
o your investment has a 5% return each year
o the Portfolio's operating expenses remain the same as shown in the
table above
o the Portfolio's indirect expenses remain at the average of the
range shown above for the 1 year example, excluding any fee waivers
and/or reimbursements for the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $692 $957 $1,241 $2,049
Investor B Shares $700 $935 $1,296 $2,180
Investor C Shares $300 $635 $1,096 $2,373
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years
Investor B Shares $200 $635 $1,096 $2,180
Investor C Shares $200 $635 $1,096 $2,373
21
<PAGE>
About the Nations Funds
The table starting on the next page is a brief overview of the objectives and
principal investments of the Nations Funds in which the LifeGoal Portfolios
invest. Each Portfolio invests in a different mix of Nations Funds. You'll
find the mix of Nations Funds and target allocations for each Portfolio
starting on page 5.
The team can substitute or add other Funds to this table at any time,
including Funds introduced after the date of this prospectus.
For more information
You'll find more detailed information about each Fund's investment strategies
and risks in its prospectus and in its SAI. Please call us at 1.800.321.7854
for copies.
22
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
------------------------------------------ ----------------------------------------------------
<S> <C> <C>
Domestic Stock Funds Growth of capital by investing in o at least 65% of its assets in common stocks of
Nations Value Fund companies that are believed to be U.S. companies. The Fund generally invests in
undervalued. companies in a broad range of industries with
market capitalizations of at least $1 billion and
daily trading volumes of at least $3 million
------------------------------------------------------------------------------------------------------------------------------------
Nations Blue Chip Fund Long-term capital appreciation through Nations Blue Chip Master portfolio. The Master
investments in blue chip stocks. Portfolio invests:
o at least 65% of its assets in blue chip stocks
o primarily in blue chip stocks that are included in
the S&P 500 Index
------------------------------------------------------------------------------------------------------------------------------------
Nations Strategic Growth Fund Long-term, after-tax returns by investing o at least 65% of its assets in common stocks of
in a diversified portfolio of common companies selected from most major industry
stocks. sectors
------------------------------------------------------------------------------------------------------------------------------------
Nations Marsico Focused Long-term growth of capital. Nations Marsico Focused Equities Master
Equities Fund Portfolio. The Master Portfolio invests:
o at least 65% of its assets in common stocks of
large companies. The Master Portfolio, which is
non-diversified, generally holds a core position
of 20 to 30 common stocks
o up to 25% of its assets in foreign securities
------------------------------------------------------------------------------------------------------------------------------------
Nations Small Company Fund Long-term capital growth by investing o at least 65% of its assets in companies with a
primarily in equity securities. market capitalization of $1 billion or less. The
Fund usually holds 75 to 130 securities, which
include common stocks, preferred stocks and
convertible securities like warrants, rights and
convertible debt
------------------------------------------------------------------------------------------------------------------------------------
International Stock Funds Long-term capital appreciation by Nations International Value Master Portfolio. The
Nations International Value Fund investing primarily in equity securities Master Portfolio invests:
of foreign issuers, including emerging o at least 65% of its assets in foreign companies
markets countries. anywhere in the world that have a market
capitalization of more than $1 billion at the time
of investment. The Fund typically invests in at
least three countries other than the United
States at any one time
o primarily in common stocks, preferred stocks,
convertible securities, either directly or
indirectly through closed-end investment
companies and depositary receipts
------------------------------------------------------------------------------------------------------------------------------------
Nations International Equity Fund Long-term capital growth by investing Nations International Equity Master Portfolio. The
primarily in equity securities of Master Portfolio invests:
non-United States companies in Europe, o at least 65% of its assets in established
Australia, the Far East and other regions, companies located in at least three countries
including developing countries. other than the United States. The investment
managers select countries, including emerging
market or developing countries, that they
believe have the potential for growth
o primarily in equity securities, which may
include equity interests in foreign investment
funds or trusts, convertible securities, real
estate investment trust securities and
depositary receipts
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
The Fund's investment objective What the Fund invests in
------------------------------------------ ---------------------------------------------------
<S> <C> <C>
Government & Corporate Bond Funds High current income consistent with o at least 65% of its total assets in investment
Nations Short-Term Income Fund minimal fluctuations of principal. grade fixed income securities. The team may
choose unrated securities if it believes they are
of comparable quality to investment grade
securities at the time of investment
o corporate debt securities, including bonds,
notes and debentures, mortgage-related
securities issued by governments, asset-backed
securities or U.S. government obligations
Total return by investing in investment o at least 65% of its assets in investment grade
Nations Bond Fund grade fixed income securities. fixed income securities. The portfolio
management team may choose unrated
securities if it believes they are of comparable
quality to investment grade securities at the
time of investment
o corporate debt securities, including bonds,
notes and debentures, U.S. government
obligations, foreign debt securities
denominated in U.S. dollars, mortgage-related
securities, asset-backed securities or municipal
securities
------------------------------------------------------------------------------------------------------------------------------------
Nations Strategic Income Fund Total return with an emphasis on current o at least 65% of its assets in investment grade
income by investing in a diversified debt securities, including corporate debt
portfolio of fixed income securities. securities, U.S. government obligations, foreign
debt securities denominated in U.S. dollars or
foreign currencies, and mortgage-related
securities issued by governments and
non-government issuers
o up to 35% of its assets in lower-quality fixed
income securities ("junk bonds" or "high yield
bonds") rated "B" or better by Moody's or S&P.
The portfolio management team may choose
unrated securities if it believes they are of
comparable quality at the time of investment
------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Maximization of current income to the o money market instruments, including
Nations Prime Fund extent consistent with the preservation commercial paper, bank obligations, short-term
of capital and the maintenance of debt securities, guaranteed investment
liquidity. contracts, short-term taxable municipal
securities, repurchase agreements secured by
first-tier securities or U.S. government
obligations
</TABLE>
24
<PAGE>
[GRAPHIC]
Other important information
[GRAPHIC]
You'll find specific information about each Portfolio's principal
investments, strategies and risks in the descriptions starting on
page 5.
The following are some other risks and information you should consider before
you invest:
o Changing investment objectives and policies - The investment objective
and certain investment policies of any Portfolio or Fund can be changed
without shareholder approval. Other investment policies may be changed
only with shareholder approval.
o Holding other kinds of investments - The Portfolios or any Fund may hold
investments that aren't part of their principal investment strategies.
Please refer to the SAI for more information. The portfolio managers or
management team can also choose not to invest in specific securities
described in this prospectus and in the SAI.
o Foreign investment risk - Funds that invest in foreign securities may be
affected by changes in currency exchange rates and the costs of
converting currencies; foreign government controls on foreign investment,
repatriation of capital, and currency and exchange; foreign taxes;
inadequate supervision and regulation of some foreign markets;
difficulties selling some investments, which may increase volatility;
different settlement practices or delayed settlements in some markets;
difficulty getting complete or accurate information about foreign
companies; less strict accounting, auditing and financial reporting
standards than those in the U.S.; political, economic or social
instability; and difficulty enforcing legal rights outside the U.S.
o Investing defensively - A Portfolio may temporarily hold up to 100% of
its assets in Nations Prime Fund, a money market fund, to try to protect
it during a market or economic downturn or because of political or other
conditions. A Portfolio may not achieve its investment objective while it
is investing defensively.
o Securities lending program - A Fund may lend portfolio securities to
approved broker-dealers or other financial institutions on a fully
collateralized basis in order to earn additional income. There may be
delays in receiving additional collateral after the loan is made or in
recovering the securities loaned.
o Portfolio turnover - A Portfolio or Fund that replaces -- or turns over
-- more than 100% of its investments in a year is considered to trade
frequently. Frequent trading can result in larger distributions of
short-term capital gains to shareholders. These gains are taxable at
higher rates than long-term capital gains. Frequent trading can also mean
higher brokerage and other transaction costs, which could reduce the
Portfolio's returns. The Portfolios generally buy securities for capital
appreciation, investment income, or both, and don't engage in short-term
trading. You'll find the portfolio turnover rate for each Portfolio in
Financial highlights.
25
<PAGE>
o Proposed reorganization - As of the date of this prospectus, it is
anticipated that management will propose a reorganization of each Nations
LifeGoal Portfolio into a newly created shell Portfolio that is
substantially identical to the existing Portfolio. The principal effect
of these reorganizations would be to redomicile the Portfolios in
Delaware, under a Delaware business trust structure that management
believes provides greater flexibility and efficiency in certain corporate
and organizational matters. If approved and recommended by the Nations
Funds Boards, shareholders will be asked to consider and vote on an
Agreement and Plan of Reorganization at special shareholders meetings. If
shareholders approve this Plan, the reorganizations would likely occur in
the second quarter of 2001.
26
<PAGE>
[GRAPHIC]
How the Portfolios are managed
[GRAPHIC]
Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds Family, including the Portfolios described in this prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation.
Nations Funds pays BAAI an annual fee for its investment advisory services.
The fee is calculated as a percentage of the average daily net assets of each
Portfolio and is paid monthly. BAAI uses part of this money to pay the
investment sub-adviser for the services it provides to each Portfolio. BAAI
has also agreed to pay all other Portfolio expenses, except taxes, brokerage
fees and commissions, extraordinary expenses, and any distribution (12b-1),
shareholder servicing or shareholder administration fees.
The following chart shows the maximum advisory fee BAAI can receive, along
with the actual advisory fees it received during the Portfolios' last fiscal
year:
Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee
advisory paid last
fee fiscal year
Nations LifeGoal Growth Portfolio 0.25% 0.25%
Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25%
Nations LifeGoal Income and Growth Portfolio 0.25% 0.25%
27
<PAGE>
Investment sub-advisers
Nations Funds and BAAI engage one or more investment sub-advisers for each
Portfolio to make day-to-day investment decisions for the Portfolio. BAAI
retains ultimate responsibility (subject to Board oversight) for overseeing
the sub-advisers and evaluates the Portfolio's needs and available
sub-advisers' skills and abilities on an ongoing basis. Based on its
evaluations, BAAI may at times recommend to a Portfolio's Board that the
Portfolio:
o change, add or terminate one or more sub-advisers;
o continue to retain a sub-adviser even though the sub-adviser's ownership or
corporate structure has changed; or
o materially change a sub-advisory agreement with a sub-adviser.
Applicable law requires a Portfolio to obtain shareholder approval in order to
act on most of these types of recommendations, even if the Portfolio's Board
has approved the proposed action and believes that the action is in
shareholders' best interests. BAAI and the Portfolios plan to apply for relief
from the SEC to permit the Portfolios to act on many of BAAI's recommendations
with approval only by the Portfolios' Board and not by Portfolio shareholders.
BAAI or a Portfolio would inform the Portfolio's shareholders of any actions
taken in reliance on this relief. Until BAAI and the Portfolios obtain the
relief, each Portfolio will continue to submit these matters to shareholders
for their approval to the extent required by applicable law.
[GRAPHIC]
Banc of America
Capital Management, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Banc of America Capital Management, Inc.
BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank
of America. Its management expertise covers all major domestic asset classes,
including equity and fixed income securities, and money market instruments.
Currently managing more than $120 billion, BACAP has over 200 institutional
clients and is sub-adviser to more than 50 mutual funds in the Nations Funds
Family. BACAP generally takes a team approach to investment management. Each
team or individual portfolio manager has access to the latest technology and
analytical resources.
BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's
Investment Strategies Team is responsible for making the day-to-day investment
decisions for each Portfolio.
BACAP is also the investment sub-adviser to the Nations Funds that appear in
the table below. The table tells you which internal BACAP asset management
team is responsible for making the day-to-day investment decisions for each
Fund.
Fund BACAP Team
Nations Value Fund Value Strategies Team
Nations Small Company Fund SmallCap Strategies Team
Nations Short-Term Income Fund Fixed Income Management Team
Nations Bond Fund Fixed Income Management Team
Nations Strategic Income Fund Fixed Income Management Team
Nations Prime Fund Taxable Money Market Management Team
Nations Strategic Growth Fund Growth Strategies Team
28
<PAGE>
Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the underlying Nations Funds in which the
Portfolios invest. These sub-advisers function under the supervision of BAAI
and the Boards of Nations Funds.
[GRAPHIC]
Marsico Capital
Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado 80202
Marsico Capital Management, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas
F. Marsico in September 1997. It is a registered investment adviser,
specializing in large capitalization stocks, and currently has over $16
billion in assets under management.
Marsico Management Holdings, LLC, a wholly-owned subsidiary of Bank of America
Corporation, indirectly owns 50% of the equity of Marsico Capital.
On June 28, 2000, Bank of America announced its intention to purchase the
remaining 50% equity interest in Marsico Capital. Under applicable law, the
change in ownership that would result from this purchase would terminate
Marsico Capital's investment sub-advisory agreements with the Nations Funds.
Shareholders of Nations Marsico Focused Equities Fund must approve a new
investment sub-advisory agreement in order for Marsico Capital to continue to
serve as investment sub-adviser to the Fund. It is anticipated that a special
meeting of shareholders would be called in the spring of 2001 to seek this
approval.
Marsico Capital is the investment sub-adviser to Nations Marsico Focused
Equities Master Portfolio.
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment
decisions for the Master Portfolio. Mr. Marsico was an executive vice
president and portfolio manager at Janus Capital Corporation from 1988 until
he formed Marsico Capital in September 1997. He has more than 20 years of
experience as a securities analyst and portfolio manager.
[GRAPHIC]
Brandes Investment
Partners, L.P.
12750 High Bluff Drive
San Diego, California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 53 investment
professionals who manage more than $40 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' Large Cap Investment Committee is responsible for making
the day-to-day investment decisions for the Master Portfolio.
[GRAPHIC]
Chicago Equity Partners LLC
180 North LaSalle
Suite 3800
Chicago, Illinois 60601
Chicago Equity Partners LLC
Chicago Equity is a registered investment adviser and is owned by the firm's
senior management. Chicago Equity is the investment sub-adviser to Nations
Blue Chip Master Portfolio.
Chicago Equity's Equity Management Team is responsible for making the
day-to-day investment decisions for Nations Blue Chip Master Portfolio.
29
<PAGE>
[GRAPHIC]
Gartmore Global Partners
Gartmore House
8 Fenchurch Place
London EC3M 4PH, England
Gartmore Global Partners
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $1 billion in assets.
Gartmore is a general partnership which is an indirect wholly-owned subsidiary
of Nationwide Mutual Insurance Company.
Gartmore generally follows a growth philosophy, which is reflected in its
active management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International
Equity Master Portfolio.
Gartmore's portion of Nations International Equity Master Portfolio is
co-managed by five portfolio managers:
Christopher Palmer has been responsible since May 1999 for investments in
developing countries, and has been the principal portfolio manager of Nations
Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a
senior investment manager on the Gartmore Emerging Markets Team. Before he
joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment
bank, in its Mexico City and Hong Kong offices, and managed global
derivatives, credit and counterparty credit risk as vice president in the
Institutional Credit Department of Bear Stearns & Co. He graduated from
Colgate University in 1986 with a BA Honors degree in History and completed an
MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA
designation by the Association of Investment Management and Research in 1993.
Seok Teoh has been responsible since June 1998 for investments in Asia. Ms.
Teoh has been with Gartmore since 1990 as the London based manager of its Far
East Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms.
Teoh is native to Singapore and is fluent in Mandarin and Cantonese. She
received an Economics degree from the University of Durham.
Nick Reid has been responsible (or has shared responsibility) for investments
in Japan since August 1999. He has been investment manager for the Gartmore
Japanese Equities Team since he joined Gartmore in 1994 and has specific
responsibility for managing retail funds. Before he joined Gartmore, Mr. Reid
was a United Kingdom Smaller Companies Analyst with Panmure Gordon and a fund
manager covering Japanese and other Asian markets with Refuge Assurance. He
graduated from Cambridge University in 1989 with an honors degree in History.
Mr. Reid is also an associate member of the Institute of Investment Management
and Research.
Stephen Jones has been responsible for investments in Europe since 1998. He is
also head of Gartmore European Equities. Mr. Jones joined Gartmore in 1994 and
was appointed head of the European equity team in 1995. He began his career at
The Prudential in 1984, and became a European equities investment manager in
1987, focusing on France, Belgium and Switzerland. He graduated from
Manchester University in 1984 with an honors degree in Economics.
30
<PAGE>
Stephen Watson has been responsible since June 1998 for allocating assets
among the various regions, and for determining investments in regions not
covered by the other portfolio managers. He was the sole portfolio manager
of Nations International Equity Fund from February 1995 to June 1998. Mr.
Watson joined Gartmore in 1993 as a global fund manager, and is the chief
investment officer of Gartmore Global Partners and a member of Gartmore's
global policy group. Before joining Gartmore, he was a director and global
fund manager with James Capel Fund Managers, London, as well as client service
manager for international clients. He was in Capel-Cure Myers' portfolio
management division from 1980 to 1987, and began his career in 1976 with
Samuel Motagu. He is a member of the Securities Institute.
[GRAPHIC]
INVESCO Global Asset
Management (N.A), Inc.
1360 Peachtree Street, N.E.
Atlanta, Georgia 30309
INVESCO Global Asset Management (N.A), Inc.
INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial
holding company located in London.
INVESCO Global is one of the three investment sub-advisers to Nations
International Equity Master Portfolio. INVESCO's International Equity
Portfolio Management Team is responsible for making the day-to-day investment
decisions for its portion of the Master Portfolio.
[GRAPHIC]
Putnam Investment
Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Putnam Investment Management, Inc.
Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Master
Portfolio.
[GRAPHIC]
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Other service providers
The Portfolios are distributed and co-administered by Stephens Inc., a
registered broker/dealer. Stephens does not receive any fees for the
administrative services it provides to the Portfolios. Stephens may pay
commissions, distribution (12b-1) and shareholder servicing fees, and/or other
compensation to companies for selling shares and providing services to
investors.
BAAI is also co-administrator of the Portfolios, and assists in overseeing the
administrative operations of the Portfolios.
[GRAPHIC]
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
PFPC Inc. (PFPC) is the transfer agent for the Portfolios' shares. Its
responsibilities include processing purchases, sales and exchanges,
calculating and paying distributions, keeping shareholder records, preparing
account statements and providing customer service.
31
<PAGE>
About your investment
--------------------------------------------------------------------------------
[GRAPHIC]
We've used the term, investment professional, to refer to the
person who has assisted you with buying Nations Funds. Selling
agent or servicing agent (sometimes referred to as a selling
agent) means the company that employs your investment
professional. Selling and servicing agents include banks,
brokerage firms, mutual fund dealers and other financial
institutions, including affiliates of Bank of America.
[GRAPHIC]
For more information
about how to choose a
share class, contact your
investment professional or
call us at 1.800.321.7854.
[GRAPHIC]
Before you invest,
please note that over
time, distribution (12b-1)
and shareholder servicing
fees will increase the cost
of your investment, and may
cost you more than any sales
charges you may pay. For
more information, see
How selling and servicing
agents are paid.
[GRAPHIC]
Choosing a share class
Before you can invest in the Portfolios, you'll need to choose a share class.
There are three classes of shares of each Portfolio offered by this
prospectus. Each class has its own sales charges and fees. The table below
compares the charges and fees and other features of the share classes.
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Shares Shares Shares
<S> <C> <C> <C>
Maximum amount you can buy no limit $250,000 no limit
Maximum front-end sales charge 5.75% none none
Maximum deferred sales charge none(1) 5.00%(2) 1.00%(3)
Maximum annual 0.25% 0.75% 0.75%
distribution and distribution distribution distribution
shareholder servicing fees (12b-1)/service (12b-1) fee and (12b-1) fee and
fee 0.25% 0.25%
service fee service fee
Conversion feature none yes none
</TABLE>
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen months
of buying them. Different charges may apply to purchases made prior to
August 1, 1999. Please see page 33 for details.
(2) This charge decreases over time. Please see page 34 for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after
July 31, 1997. Please see page 34 for details.
(3) This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page 36 for details.
The share class you choose will depend on how much you're investing, how long
you're planning to stay invested, and how you prefer to pay the sales charge.
The total cost of your investment over the time you expect to hold your shares
will be affected by the distribution (12b-1) and shareholder servicing fees,
as well as by the amount of any front-end sales charge or contingent deferred
sales charge (CDSC) that applies, and when you're required to pay the charge.
You should think about these things carefully before you invest.
Investor A Shares have a front-end sales charge, which is deducted when you
buy your shares. This means that a smaller amount is invested in the
Portfolios, unless you qualify for a waiver or reduction of the sales charge.
However, Investor A Shares have lower ongoing distribution (12b-1) and/or
shareholder servicing fees than Investor B and Investor C Shares. This means
that Investor A Shares can be expected to pay relatively higher dividends per
share.
32
<PAGE>
Investor B Shares have limits on how much you can invest. When you buy
Investor B or Investor C Shares, the full amount is invested in the
Portfolios. However, you may pay a CDSC when you sell your shares. Over time,
Investor B and Investor C Shares can incur distribution (12b-1) and
shareholder servicing fees that are equal to or more than the front-end sales
charge, and the distribution (12b-1) and shareholder servicing fees you would
pay for Investor A Shares. Although the full amount of your purchase is
invested in the Portfolios, any positive investment return on this money may
be partially or fully offset by the expected higher annual expenses of
Investor B and Investor C Shares. You should also consider the conversion
feature for Investor B Shares, which is described in About Investor B Shares.
[GRAPHIC]
The offering price per share is the net asset value per share plus
any sales charge that applies.
The net asset value per share is the price of a share calculated
by a Portfolio every business day.
[GRAPHIC]
About Investor A Shares
There is no limit to the amount you can invest in Investor A Shares.
You generally will pay a front-end sales charge when you buy your
shares, or in some cases, a CDSC when you sell your shares.
Front-end sales charge
You'll pay a front-end sales charge when you buy Investor A Shares,
unless:
o you qualify for a waiver of the sales charge. You can find out if you
qualify for a waiver in the section When you might not have to pay a
sales charge
o you're reinvesting distributions
The sales charge you'll pay depends on the amount you're
investing -- generally, the larger the investment, the smaller the
percentage sales charge.
by selling agents
Sales charge Sales charge as a % of the
as a % of the as a % of the offering price
offering price net asset value Amount retained
Amount you bought per share per share per share
$0-$49,999 5.75% 6.10% 5.00%
$50,000-$99,999 4.50% 4.71% 3.75%
$100,000-$249,999 3.50% 3.63% 2.75%
$250,000-$499,999 2.50% 2.56% 2.00%
$500,000-$999,999 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on
amounts over $50,000,000. Stephens pays the amount retained by selling
agents on investments of $1,000,000 or more, but may be reimbursed when a
CDSC is deducted if the shares are sold within eighteen months from the
time they were bought. Please see How selling and servicing agents are paid
for more information.
33
<PAGE>
Contingent deferred sales charge
If you own or buy $1,000,000 or more of Investor A Shares, there are
two situations when you'll pay a CDSC:
o If you bought your shares before August 1, 1999, and you sell them:
o during the first year you own them, you'll pay a CDSC of 1.00%
o during the second year you own them, you'll pay a CDSC of 0.50%
o If you buy your shares on or after August 1, 1999 and sell them
within 18 months of buying them, you'll pay a CDSC of 1.00%.
The CDSC is calculated from the day your purchase is accepted (the
trade date). We deduct the CDSC from the market value or purchase price
of the shares, whichever is lower.
You won't pay a CDSC on any increase in net asset value since you
bought your shares, or on any shares you receive from reinvested
distributions. We'll sell any shares that aren't subject to the CDSC
first. We'll then sell shares that result in the lowest CDSC.
[GRAPHIC]
About Investor B Shares
You can buy up to $250,000 of Investor B Shares at a time. You don't
pay a sales charge when you buy Investor B Shares, but you may have to
pay a CDSC when you sell them.
Contingent deferred sales charge
You'll pay a CDSC when you sell your Investor B Shares, unless:
o you bought the shares on or after January 1, 1996 and before August 1,
1997
o you received the shares from reinvested distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify
for a waiver on page 39
34
<PAGE>
The CDSC you pay depends on when you bought your shares, how much you
bought in some cases, and how long you held them.
<TABLE>
<CAPTION>
If you sell your shares
during the following year: You'll pay a CDSC of:
---------------------------------- -------------------------------------------------------------------------
Shares
you bought
Shares on or after Shares
you bought Shares you bought between 1/1/1996 you bought
after 8/1/1997 and 11/15/1998 and before before
11/15/1998 in the following amounts: 8/1/1997 1/1/1996
------------ ----------------------------------- ------------ -----------
$250,000- $500,000-
$0-$249,999 $499,999 $999,999
<S> <C> <C> <C> <C> <C> <C>
the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0%
the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0%
the third year you own them 3.0% 3.0% 1.0% none none 3.0%
the fourth year you own them 3.0% 3.0% none none none 2.0%
the fifth year you own them 2.0% 2.0% none none none 2.0%
the sixth year you own them 1.0% 1.0% none none none 1.0%
after six years of owning them none none none none none none
</TABLE>
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
Your selling agent receives compensation when you buy Investor B
Shares. Please see How selling and servicing agents are paid for more
information.
About the conversion feature
Investor B Shares generally convert automatically to Investor A Shares
according to the following schedule:
Will convert to Investor A Shares
Investor B Shares you bought after you've owned them for
after November 15, 1998 eight years
between August 1, 1997
and November 15, 1998
$0-$249,000 nine years
$250,000-$499,999 six years
$500,000-$999,999 five years
before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating
costs of Investor A Shares, which can help increase total returns.
Here's how the conversion works:
o We won't convert your shares if you tell your investment professional,
selling agent or the transfer agent within 90 days before the
conversion date that you don't want your shares to be converted.
Remember, it's in your best interest to convert your shares because
Investor A Shares have lower expenses.
o Shares are converted at the end of the month in which they become
eligible for conversion. Any shares you received from reinvested
distributions on these shares will convert to Investor A Shares at the
same time.
35
<PAGE>
o You'll receive the same dollar value of Investor A Shares as the
Investor B Shares that were converted. No sales charge or other
charges apply.
o Investor B Shares that you received from an exchange of Investor B
Shares of another Nations Fund will convert based on the day you
bought the original shares. Your conversion date may be later if you
exchanged to or from a Nations Funds Money Market Fund.
o Conversions are free from federal tax.
[GRAPHIC]
About Investor C Shares
There is no limit to the amount you can invest in Investor C Shares.
You don't pay a sales charge when you buy Investor C Shares, but you
may pay a CDSC when you sell them.
Contingent deferred sales charge
You'll pay a CDSC of 1.00% when you sell Investor C Shares within one
year of buying them, unless:
o you received the shares from reinvested distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify
for a waiver on page 39
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
Your selling agent receives compensation when you buy Investor C
Shares. Please see How selling and servicing agents are paid for more
information.
[GRAPHIC]
Please contact your investment professional for more information
about reductions and waivers of sales charges.
You should tell your investment professional that you may qualify
for a reduction or a waiver before buying shares.
We can change or cancel these terms at any time. Any change or
cancellation applies only to future purchases.
When you might not have to pay a sales charge
Front-end sales charges
(Investor A Shares)
There are three ways you can lower the front-end sales charge you pay
on Investor A Shares:
o Combine purchases you've already made
Rights of accumulation allow you to combine the value of Investor A,
Investor B and Investor C Shares you already own with Investor A Shares
you're buying to calculate the sales charge. The sales charge is based
on the total value of the shares you already own, or the original
purchase cost, whichever is higher, plus the value of the shares you're
buying. Index Funds and Money Market Funds, except Investor B and
Investor C Shares of Nations Reserves Money Market Funds, don't qualify
for rights of accumulation.
36
<PAGE>
o Combine purchases you plan to make By signing a letter of intent,
you can combine the value of shares you already own with the value
of shares you plan to buy over a 13-month period to calculate the
sales charge.
o You can choose to start the 13-month period up to 90 days before
you sign the letter of intent.
o Each purchase you make will receive the sales charge that applies
to the total amount you plan to buy.
o If you don't buy as much as you planned within the period, you
must pay the difference between the charges you've paid and the
charges that actually apply to the shares you've bought.
o Your first purchase must be at least 5% of the minimum amount for
the sales charge level that applies to the total amount you plan
to buy.
o If the purchase you've made later qualifies for a reduced sales
charge through the 90-day backdating provisions, we'll make an
adjustment for the lower charge when the letter of intent
expires. Any adjustment will be used to buy additional shares at
the reduced sales charge.
o Combine purchases with family members You can receive a quantity
discount by combining purchases of Investor A Shares that you, your
spouse and children under age 21 make on the same day. Some
distributions or payments from the dissolution of certain qualified
plans also qualify for the quantity discount. Index Funds and Money
Market Funds, except Investor B and Investor C Shares of Nations
Reserves Money Market Funds, don't qualify.
The following investors can buy Investor A Shares without paying a
front-end sales charge:
o full-time employees and retired employees of Bank of America
Corporation (and its predecessors), its affiliates and subsidiaries
and the immediate families of these people
o banks, trust companies and thrift institutions, acting as fiduciaries
o individuals receiving a distribution from a Bank of America trust or
other fiduciary account may use the proceeds of that distribution to
buy Investor A Shares without paying a front-end sales charge, as long
as the proceeds are invested in the Portfolios within 90 days of the
date of distribution
o Nations Funds' Trustees, Directors and employees of its investment
sub-advisers
o registered broker/dealers that have entered into a Nations Funds
dealer agreement with Stephens may buy Investor A Shares without
paying a front-end sales charge for their investment account only
37
<PAGE>
o registered personnel and employees of these broker/dealers and their
family members may buy Investor A Shares without paying a front-end
sales charge according to the internal policies and procedures of the
employing broker/dealer as long as these purchases are made for their
own investment purposes
o employees or partners of any service provider to the Portfolios
o investors who buy through accounts established with certain fee-based
investment advisers or financial planners, wrap fee accounts and other
managed agency/asset allocation accounts
o shareholders of certain Funds that reorganized into the Nations Funds
who were entitled to buy shares at net asset value
The following plans can buy Investor A Shares without paying a
front-end sales charge:
o pension, profit-sharing or other employee benefit plans established
under Section 401 or Section 457 of the Internal Revenue Code of 1986,
as amended (the tax code)
o employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501(c)(3) of the tax code. To qualify for the waiver, the plan
must:
o have at least $500,000 invested in Investor A Shares of Nations Funds
(except Money Market Funds), or
o sign a letter of intent to buy at least $500,000 of Investor A Shares
of Nations Funds (except Money Market Funds), or
o be an employer-sponsored plan with at least 100 eligible participants,
or
o be a participant in an alliance program that has signed an agreement
with the Portfolio or a selling agent
You can also buy Investor A Shares without paying a sales charge if you
buy the shares within 120 days of selling the same Portfolio. This is
called the reinstatement privilege. You can invest up to the amount of
the sale proceeds. We'll credit your account with any CDSC paid when
you sold the shares. The reinstatement privilege does not apply to any
shares you bought through a previous reinstatement. PFPC, Stephens or
their agents must receive your written request within 120 days after
you sell your shares.
In addition, you can buy Investor A Shares without paying a sales
charge if you buy the shares with proceeds from the redemption of
shares of a nonaffiliated mutual fund as long as the redemption of the
nonaffiliated fund shares occurred within 45 days prior to the purchase
of the Investor A Shares. We must receive a copy of the confirmation of
the redemption transaction in order for you to avoid paying the sales
charge.
38
<PAGE>
Contingent deferred sales charges
(Investor A, Investor B and Investor C Shares)
You won't pay a CDSC on the following transactions:
o shares sold following the death or disability (as defined in the tax
code) of a shareholder, including a registered joint owner
o the following retirement plan distributions:
o lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following the retirement (or following
attainment of age 59 1/2 in the case of a "key employee" of a "top
heavy" plan)
o distributions from an IRA or Custodial Account under Section
403(b)(7) of the tax code, following attainment of age 59 1/2
o a tax-free return of an excess contribution to an IRA
o distributions from a qualified retirement plan that aren't subject
to the 10% additional federal withdrawal tax under Section 72(t)(2)
of the tax code
o payments made to pay medical expenses which exceed 7.5% of income, and
distributions made to pay for insurance by an individual who has
separated from employment and who has received unemployment
compensation under a federal or state program for at least 12 weeks
o shares sold under our right to liquidate a shareholder's account,
including instances where the aggregate net asset value of Investor A,
Investor B or Investor C Shares held in the account is less than the
minimum account size
o shares bought through accounts established with certain fee-based
investment advisers or financial planners, wrap fee accounts and other
managed agency/asset allocation accounts
o if you exchange Investor B or Investor C Shares of a Nations Fund that
were bought through a Bank of America employee benefit plan for
Investor A Shares of a Nations Fund
o withdrawals made under the Automatic Withdrawal Plan described in
Buying, selling and exchanging shares, if the total withdrawals of
Investor A, Investor B or Investor C Shares made in a year are less
than 12% of the total value of those shares in your account. A CDSC
may only apply to Investor A Shares if you bought more than $1,000,000
39
<PAGE>
We'll also waive the CDSC on the sale of Investor A or Investor C
Shares bought before September 30, 1994 by current or retired employees
of Bank of America Corporation (and its predecessors) and its
affiliates, or by current or former trustees or directors of the
Nations Funds or other management companies managed by Bank of America.
You won't pay a CDSC on the sale of Investor B or Investor C Shares if
you reinvest any of the proceeds in the same Portfolio within 120 days
of the sale. This is called the reinstatement privilege. You can invest
up to the amount of the sale proceeds. We'll credit your account with
any CDSC paid when you sold the shares. The reinstatement privilege
does not apply to any shares you bought through a previous
reinstatement. PFPC, Stephens or their agents must receive your written
request within 120 days after you sell your shares.
40
<PAGE>
[GRAPHIC]
When you sell shares of a mutual fund, the fund is effectively
"buying" them back from you. This is called a redemption.
[GRAPHIC]
Buying, selling and exchanging shares
You can invest in the Portfolios through your selling agent or directly from
Nations Funds.
We encourage you to consult with an investment professional who can open an
account for you with a selling agent and help you with your investment
decisions. Once you have an account, you can buy, sell and exchange shares by
contacting your investment professional or selling agent. They will look after
any paperwork that's needed to complete a transaction and send your order to
us.
You should also ask your selling agent about its limits, fees and policies for
buying, selling and exchanging shares, which may be different from those
described here, and about its related programs or services.
The table on the next page summarizes some key information about buying,
selling and exchanging shares. You'll find sales charges and other fees that
apply to these transactions in Choosing a share class.
The Funds also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. Please contact your
investment professional, or call us at 1.800.321.7854 if you have any
questions or you need help placing an order.
41
<PAGE>
<TABLE>
<CAPTION>
Ways to
buy, sell or How much you can buy,
exchange sell or exchange Other things to know
------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in
o $1,000 for regular accounts Investor A and C Shares. You can invest up to
o $500 for traditional and Roth IRA $250,000 in Investor B Shares at a time.
accounts
o $250 for certain fee-based accounts
o no minimum for certain retirement plan
accounts like 401(k) plans and SEP
accounts, but other restrictions apply
minimum additional investment:
o $100 for all accounts
Using our minimum initial investment: You can buy shares monthly, twice a month or
Systematic o $100 quarterly, using automatic transfers from your bank
Investment Plan minimum additional investment: account.
o $50
------------------------------------------------------------------------------------------------------------------------------------
Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're
shares by telephone, otherwise there selling and send you or your selling agent the
are no limits to the amount you can sell balance, usually within three business days of
o other restrictions may apply to receiving your order.
withdrawals from retirement plan If you paid for your shares with a check that wasn't
accounts certified, we'll hold the sale proceeds when you
sell those shares for at least 15 days after the
trade date of the purchase, or until the check has
cleared.
Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 to
Automatic set up the plan. You can make withdrawals
Withdrawal Plan monthly, twice a month or quarterly. We'll send
your money by check or deposit it directly to your
bank account. No CDSC is deducted if you withdraw
12% or less of the value of your shares in a class.
------------------------------------------------------------------------------------------------------------------------------------
Exchanging shares In a lump sum minimum $1,000 per exchange You can exchange your Investor A Shares for
Investor A shares of any other Portfolio or Nations
Fund, except Index Funds. You won't pay a front-end
sales charge, CDSC or redemption fee on the shares
you're exchanging.
You can exchange your Investor B Shares for:
o Investor B Shares of any other Portfolio or
Nations Fund, except Nations Funds Money
Market Funds
o Investor B Shares of Nations Reserves Money
Market Funds
You can exchange your Investor C Shares for:
o Investor C Shares of any other Portfolio or
Nations Fund, except Nations Funds Money
Market Funds
o Investor C Shares of Nations Reserves Money
Market Funds
If you received Investor C Shares of a Portfolio
from an exchange of Investor A Shares of a Managed
Index Fund, you can also exchange these shares for
Investor A Shares of an Index Fund.
You won't pay a CDSC on the shares you're
exchanging.
Using our o minimum $25 per exchange This feature is not available for Investor B Shares.
Automatic You must already have an investment in the
Exchange Feature Portfolios or Funds into which you want to
exchange. You can make exchanges monthly or
quarterly.
</TABLE>
42
<PAGE>
[GRAPHIC]
A business day is any day that the New York Stock Exchange (NYSE)
is open. A business day ends at the close of regular trading on
the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes
early, the business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
How shares are priced
All transactions are based on the price of a Portfolio's shares -- or its net
asset value per share. We calculate net asset value per share for each class
of each Portfolio at the end of each business day. The net asset value per
share of a Portfolio is based on the net asset value per share of the Nations
Funds the Portfolio invests in.
We calculate the net asset value for each class of a Fund by determining the
value of the Fund's assets in the class and then subtracting its liabilities.
Next, we divide this amount by the number of shares that investors are holding
in the class.
Valuing securities in an underlying Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, or the value of a security has been
materially affected by events occurring after a foreign exchange closes, we'll
base the price of a security on its fair value. When a Fund uses fair value to
price securities it may value those securities higher or lower than another
fund that uses market quotations to price the same securities. We use the
amortized cost method, which approximates market value, to value short-term
investments maturing in 60 days or less. International markets may be open on
days when U.S. markets are closed. The value of foreign securities owned by a
Fund could change on days when Fund shares may not be bought or sold.
How orders are processed
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, PFPC or their agents before the end of a business day
(usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive
that day's net asset value per share. Orders received after the end of a
business day will receive the next business day's net asset value per share.
The business day that applies to your order is also called the trade date. We
may refuse any order to buy or exchange shares. If this happens, we'll return
any money we've received to your selling agent.
43
<PAGE>
Telephone orders
You can place orders to buy, sell or exchange by telephone if you complete the
telephone authorization section of our account application and send it to us.
Here's how telephone orders work:
o If you sign up for telephone orders after you open your account, you
must have your signature guaranteed.
o Telephone orders may not be as secure as written orders. You may be
responsible for any loss resulting from a telephone order.
o We'll take reasonable steps to confirm that telephone instructions are
genuine. For example, we require proof of your identification before we
will act on instructions received by telephone and may record telephone
conversations. If we and our service providers don't take these steps, we
may be liable for any losses from unauthorized or fraudulent
instructions.
o Telephone orders may be difficult to complete during periods of
significant economic or market change.
[GRAPHIC]
The offering price per share is the net asset value per share plus
any sales charge that applies.
The net asset value per share is the price of a share calculated
by a Portfolio every business day.
[GRAPHIC]
Buying shares
Here are some general rules for buying shares:
o You buy Investor A Shares at the offering price per share. You buy
Investor B and Investor C Shares at net asset value per share.
o If we don't receive your money within three business days of
receiving your order, we'll refuse the order.
o Selling agents are responsible for sending orders to us and
ensuring we receive your money on time.
o Shares purchased are recorded on the books of the Portfolio. We
don't issue certificates.
Minimum initial investment
The minimum initial amount you can buy is usually $1,000.
If you're buying shares through one of the following accounts or plans,
the minimum initial amount you can buy is:
o $500 for traditional and Roth individual retirement accounts (IRAs)
o $250 for accounts set up with some fee-based investment advisers or
financial planners, including wrap fee accounts and other managed
accounts
o $100 using our Systematic Investment Plan
o There is no minimum for 401(k) plans, simplified employee pension
plans (SEPs), salary reduction-simplified employee pension plans
(SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE
IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of
accounts. However, if the value of your account falls below
$1,000 for 401(k) plans or $500 for the other plans within one
year after you open your account, we may sell your shares. We'll
give you 60 days notice in writing if we're going to do this
Minimum additional investment
You can make additional purchases of $100, or $50 if you use our
Systematic Investment Plan.
44
<PAGE>
[GRAPHIC]
For more information
about telephone orders,
see page 44.
Systematic Investment Plan
You can make regular purchases of $50 or more using automatic transfers from
your bank account to the Portfolios you choose. You can contact your
investment professional or us to set up the plan.
Here's how the plan works:
o You can buy shares twice a month, monthly or quarterly.
o You can choose to have us transfer your money on or about the 15th or
the last day of the month.
o Some exceptions may apply to employees of Bank of America and its
affiliates, and to plans set up before August 1, 1997. For details,
please contact your investment professional.
[GRAPHIC]
Selling shares
Here are some general rules for selling shares:
o We'll deduct any CDSC from the amount you're selling and send you
the balance.
o If you're selling your shares through a selling agent, we'll
normally send the sale proceeds by federal funds wire within three
business days after Stephens, PFPC or their agents receive your
order. Your selling agent is responsible for depositing the sale
proceeds to your account on time.
o If you're selling your shares directly through us, we'll normally
send the sale proceeds by mail or wire them to your bank account
within three business days after the Portfolio receives your order.
o You can sell up to $50,000 of shares by telephone if you qualify for
telephone orders.
o If you paid for your shares with a check that wasn't certified,
we'll hold the sale proceeds when you sell those shares for at least
15 days after the trade date of the purchase, or until the check has
cleared, whichever is later.
o If you hold any shares in certificate form, you must sign the
certificates (or send a signed stock power with them) and send them
to PFPC. Your signature must be guaranteed unless you've made other
arrangements with us. We may ask for any other information we need
to prove that the order is properly authorized.
o Under certain circumstances allowed under the Investment Company Act
of 1940 (1940 Act), we can pay you in securities or other property
when you sell your shares.
o We can delay payment of the sale proceeds for up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information about these restrictions, please contact your retirement
plan administrator.
45
<PAGE>
We may sell your shares:
o if the value of your account falls below $500. We'll give you 60
days notice in writing if we're going to do this
o if your selling agent tells us to sell your shares under
arrangements made between the selling agent and its customers
o under certain other circumstances allowed under the 1940 Act
Automatic Withdrawal Plan
The Automatic Withdrawal Plan lets you withdraw $25 or more every month, every
quarter or every year. You can contact your investment professional or us to
set up the plan.
Here's how the plan works:
o Your account balance must be at least $10,000 to set up the plan.
o If you set up the plan after you've opened your account, your signature
must be guaranteed.
o You can choose to have us transfer your money on or about the 15th or the
25th of the month.
o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if
you withdraw 12% or less of the value of those shares in a year.
Otherwise, we'll deduct any CDSC from the withdrawals.
o We'll send you a check or deposit the money directly to your bank
account.
o You can cancel the plan by giving your selling agent or us 30 days notice
in writing.
It's important to remember that if you withdraw more than your investment in
the Portfolio is earning, you'll eventually use up your original investment.
[GRAPHIC]
You should make sure you understand the investment objective and
principal investment strategies of the Portfolio or Fund you're
exchanging into. Please read its prospectus carefully.
[GRAPHIC]
Exchanging shares
You can sell shares of a Portfolio to buy shares of another Portfolio
or Nations Fund. This is called an exchange. You might want to do this
if your investment goals or tolerance for risk changes.
Here's how exchanges work:
o You must exchange at least $1,000, or $25 if you use our Automatic
Exchange Feature.
o The rules for buying shares of a Portfolio or Fund, including any
minimum investment requirements, apply to exchanges into that
Portfolio or Fund.
o You may only make an exchange into a Portfolio or Fund that is
legally sold in your state of residence.
46
<PAGE>
o You generally may only make an exchange into a Portfolio or Fund
that is accepting investments.
o We may limit the number of exchanges you can make within a specified
period of time.
o We may change or cancel your right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
o You cannot exchange any shares you own in certificate form until
PFPC has received the certificate and deposited the shares to your
account.
Exchanging Investor A Shares
You can exchange Investor A Shares of a Portfolio for Investor A Shares
of any other Portfolio or Nations Fund, except Index Funds.
Here are some rules for exchanging Investor A Shares:
o You won't pay a front-end sales charge on the shares of the
Portfolio or Fund you're exchanging.
o You won't pay a CDSC, if applicable, on the shares you're
exchanging. Any CDSC will be deducted later on when you sell the
shares you received from the exchange. The CDSC at that time will be
based on the period from when you bought the original shares until
when you sold the shares you received from the exchange.
o You won't pay a redemption fee on the shares you're exchanging. Any
redemption fee will be deducted later on when you sell the shares
you received from the exchange. Any redemption fee will be paid to
the original Portfolio or Fund.
Exchanging Investor B Shares
You can exchange Investor B Shares of a Portfolio for:
o Investor B Shares of any other Portfolio or Nations Fund, except
Nations Funds Money Market Funds
o Investor B Shares of Nations Reserves Money Market Funds
You won't pay a CDSC on the shares you're exchanging. Any CDSC will be
deducted when you sell the shares you received from the exchange. The
CDSC will be based on the period from when you bought the original
shares until you sold the shares you received from the exchange.
If you received Investor C Shares of a Nations Funds Money Market Fund
from an exchange of Investor B Shares of a Fund before October 1, 1999,
a CDSC may apply when you sell your Investor C Shares. The CDSC will be
based on the period from when you bought the original shares until you
exchanged them.
Exchanging Investor C Shares
You can exchange Investor C Shares of a Portfolio for:
o Investor C Shares of any other Portfolio or Nations Fund, except
Nations Funds Money Market Funds
47
<PAGE>
o Investor C Shares of Nations Reserves Money Market Funds
If you received Investor C Shares of a Portfolio from an exchange of
Investor A Shares of a Managed Index Fund, you can also exchange these
shares for Investor A Shares of an Index Fund.
You won't pay a CDSC on the shares you're exchanging. Any CDSC will be
deducted later on when you sell the shares you received from the
exchange. The CDSC will be based on the period from when you bought the
original shares until you sold the shares you received from the
exchange.
If you received Daily Shares of a Nations Funds Money Market Fund
through an exchange of Investor C Shares of a Portfolio before October
1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC
will be based on the period from when you bought the original shares
until you exchanged them.
Automatic Exchange Feature
The Automatic Exchange Feature lets you exchange $25 or more of Investor A or
Investor C Shares every month or every quarter. You can contact your
investment professional or us to set up the plan.
Here's how automatic exchanges work:
o Send your request to PFPC in writing or call 1.800.321.7854.
o You must already have an investment in the Portfolios or Funds you want
to exchange.
o You can choose to have us transfer your money on or about the 1st or the
15th day of the month.
o The rules for making exchanges apply to automatic exchanges.
48
<PAGE>
[GRAPHIC]
How selling and servicing agents are paid
Your selling and servicing agents usually receive compensation based on your
investment in the Portfolios. The kind and amount of the compensation depends
on the share class in which you invest. Selling agents typically pay a portion
of the compensation they receive to their investment professionals.
Commissions
Your selling agent may receive an up-front commission (reallowance) when you
buy shares of a Portfolio. The amount of this commission depends on which
share class you choose:
o up to 5.00% of the offering price per share of Investor A Shares. The
commission is paid from the sales charge we deduct when you buy your
shares
o up to 4.00% of the net asset value per share of Investor B Shares. The
commission is not deducted from your purchase -- we pay your selling
agent directly
o up to 1.00% of the net asset value per share of Investor C Shares. The
commission is not deducted from your purchase -- we pay your selling
agent directly
If you buy Investor B or Investor C Shares you will be subject to higher
distribution (12b-1) and shareholder servicing fees and may be subject to a
CDSC when you sell your shares.
[GRAPHIC]
The financial institution or intermediary that buys shares for you
is also sometimes referred to as a selling agent.
The distribution fee is often referred to as a "12b-1" fee because
it's paid through a plan approved under Rule 12b-1 under the 1940
Act.
Your selling agent may charge other fees for services provided to
your account.
Distribution (12b-1) and shareholder servicing fees
Stephens and selling and servicing agents may be compensated for selling
shares and providing services to investors under distribution and shareholder
servicing plans.
The amount of the fee depends on the class of shares you own:
<TABLE>
<CAPTION>
Maximum annual distribution (12b-1)
and shareholder servicing fees
(as an annual % of average daily net assets)
<S> <C>
Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee
Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
</TABLE>
Fees are calculated daily and deducted monthly. Because these fees are paid
out of the Portfolios' assets on an ongoing basis they will increase the cost
of your investment over time, and may cost you more than any sales charges you
may pay.
The Portfolios pay these fees to Stephens and to eligible selling and
servicing agents for as long as the plans continue. We may reduce or
discontinue payments at any time.
49
<PAGE>
Other compensation
Selling and servicing agents may also receive:
o a bonus, incentive or other compensation relating to the sale, promotion
and marketing of the Portfolios
o additional amounts on all sales of shares:
o up to 1.00% of the offering price per share of Investor A Shares
o up to 1.00% of the net asset value per share of Investor B Shares
o up to 1.00% of the net asset value per share of Investor C Shares
o non-cash compensation like trips to sales seminars, tickets to sporting
events, theater or other entertainment, opportunities to participate in
golf or other outings and gift certificates for meals or merchandise
This compensation, which is not paid by the Portfolios, is discretionary and
may be available only to selected selling and servicing agents. For example,
Stephens sometimes sponsors promotions involving Banc of America Investment
Services, Inc., an affiliate of BAAI, and certain other selling or servicing
agents. Selected selling and servicing agents also may receive compensation
for opening a minimum number of accounts.
BAAI and Stephens may pay amounts from their own assets to selling or
servicing agents of the Funds for services they provide.
50
<PAGE>
[GRAPHIC]
The power of compounding
Reinvesting your distributions buys you more shares of a
Portfolio -- which lets you take advantage of the potential for
compound growth.
Putting the money you earn back into your investment means it, in
turn, may earn even more money. Over time, the power of
compounding has the potential to significantly increase the value
of your investment. There is no assurance, however, that you'll
earn more money if you reinvest your distributions.
[GRAPHIC]
Distributions and taxes
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on common stocks.
o A fund can also have capital gain if the value of its investments
increases. If a fund sells an investment at a gain, the gain is realized.
If a fund continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The
Portfolios intend to pay out a sufficient amount of their income and capital
gain to their shareholders so the Portfolios won't have to pay any income tax.
When a Portfolio makes this kind of a payment, it's split equally among all
shares, and is called a distribution.
All of the Portfolios distribute net investment income quarterly, and any net
realized capital gain at least once a year.
The distribution you receive is based on the number of shares you hold on the
record date, which is usually the day the distribution is declared (daily
dividend Funds) or the day before the distribution is declared (all other
Funds). Shares are eligible to receive distributions from the settlement date
(daily dividend Funds) or the trade date (all other Funds) of the purchase up
to and including the day before the shares are sold.
Different share classes of a Portfolio usually pay different distribution
amounts, because each class has different expenses. Each time a distribution
is made, the net asset value per share of the share class is reduced by the
amount of the distribution.
We'll automatically reinvest distributions in additional shares of the same
Portfolio unless you tell us you want to receive your distributions in cash.
You can do this by writing to us at the address on the back cover or by
calling us at 1.800.321.7854.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll normally pay any distribution that applies to those
shares in cash within five business days after the sale was made.
If you buy shares of a Portfolio shortly before it makes a distribution, you
will, in effect, receive part of your purchase back in the distribution, which
is subject to tax. Similarly, if you buy shares of a Portfolio that holds
securities with unrealized capital gain, you will, in effect, receive part of
your purchase back if and when the Portfolio sells those securities and
distributes the gain. This distribution is also subject to tax. Some
Portfolios have built up, or have the potential to build up, high levels of
unrealized capital gain.
51
<PAGE>
[GRAPHIC]
This information is a summary of how federal income taxes may
affect your investment in the Portfolios. It is not intended as a
substitute for careful tax planning. You should consult with your
own tax advisor about your situation, including any foreign, state
and local taxes that may apply.
[GRAPHIC]
For more information about taxes, please see the SAI.
How taxes affect your investment
Distributions that come from net investment income and net short-term capital
gain over net long-term capital loss generally are taxable to you as ordinary
income. A portion of such distributions to corporate shareholders may qualify
for the dividends received deduction.
Distributions that come from net capital gain (generally the excess of net
long-term capital gain over net short-term capital loss), generally are
taxable to you as net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the
Portfolio. However, any distributions declared in October, November or
December of one year and distributed in January of the following year will be
taxable as if they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts to be paid for in
securities or other property and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax (at a rate of 30%,
or a lower rate if a treaty applies) on distributions paid to foreign
shareholders.
Taxation of redemptions and exchanges
Your redemptions (including redemptions paid in securities or other property)
and exchanges of Portfolio shares will usually result in a taxable capital
gain or loss to you, depending on the amount you receive for your shares (or
are deemed to receive in the case of exchanges) and the amount you paid (or
are deemed to have paid) for them.
52
<PAGE>
[GRAPHIC]
Financial highlights
The financial highlights table is designed to help you understand how the
Portfolios have performed for the past five years or, if shorter, the period
of the Portfolio's operations. Certain information reflects financial results
for a single Portfolio share. The total investment return line indicates how
much an investment in the Portfolio would have earned, assuming all dividends
and distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. The
independent accountants' report and Nations Funds financial statements are
incorporated by reference into the SAI. Please see the back cover to find out
how you can get a copy.
53
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio For a Share outstanding throughout each period
Investor A Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.16 $ 12.50 $ 10.15 $ 10.06
Net investment income 0.01 0.04 0.05 0.12
Net realized and unrealized gain on investments 3.87 0.30 2.89 0.09
Net increase in net assets resulting from investment
operations 3.88 0.34 2.94 0.21
Distributions:
Distributions from net investment income -- -- ( 0.01) ( 0.12)
Distributions in excess of net investment income ( 0.17) ( 0.08) ( 0.37) --
Distributions from net realized capital gains ( 0.39) ( 0.60) ( 0.21) --
Total distributions ( 0.56) ( 0.68) ( 0.59) ( 0.12)
Net asset value, end of period $ 15.48 $ 12.16 $ 12.50 $ 10.15
Total return++ 32.67% 2.87% 29.68% 2.05%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,528 $3,404 $1,526 $ 681
Ratio of operating expenses to average net
assets+++ 0.50% 0.50% 0.50% 0.50%+
Ratio of net investment income to average net
assets 0.09% 0.21% 0.40% 0.86%+
Portfolio turnover rate 161% 159% 69% 25%
</TABLE>
* LifeGoal Growth Portfolio Investor A Shares
commenced investment operations on October 2, 1996.
Shares were offered to the public on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio For a Share outstanding throughout each period
Investor B Shares Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a)*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.13 $ 12.49 $ 11.98
Net investment income/(loss) ( 0.08) ( 0.06) ( 0.02)
Net realized and unrealized gain on investments 3.84 0.31 0.99
Net increase in net assets resulting from investment
operations 3.76 0.25 0.97
Distributions:
Distributions from net investment income -- -- ( 0.01)
Distributions in excess of net investment income ( 0.15) ( 0.01) ( 0.24)
Distributions from net realized capital gains ( 0.39) ( 0.60) ( 0.21)
Total distributions ( 0.54) ( 0.61) ( 0.46)
Net asset value, end of period $ 15.35 $ 12.13 $ 12.49
Total return++ 31.68% 2.14% 8.55%
==============================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $8,972 $8,531 $5,829
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.25%+
Ratio of net investment income/(loss) to average
net assets ( 0.66)% ( 0.54)% ( 0.35)%+
Portfolio turnover rate 161% 159% 69%
</TABLE>
* LifeGoal Growth Portfolio Investor B Shares
commenced investment operations on August 12, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
54
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Growth Portfolio For a Share outstanding throughout each period
Investor C Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.09 $ 12.46 $ 10.15 $ 10.06
Net investment income/(loss) ( 0.08) ( 0.05) ( 0.02) 0.11
Net realized and unrealized gain on investments 3.83 0.30 2.89 0.09
Net increase in net assets resulting from investment
operations 3.75 0.25 2.87 0.20
Distributions:
Distributions from net investment income -- -- ( 0.01) ( 0.11)
Distributions in excess of net investment income ( 0.15) ( 0.02) ( 0.34) --
Distributions from net realized capital gains ( 0.39) ( 0.60) ( 0.21) --
Total distributions ( 0.54) ( 0.62) ( 0.56) ( 0.11)
Net asset value, end of period $ 15.30 $ 12.09 $ 12.46 $ 10.15
Total return++ 31.65% 2.07% 28.89% 2.01%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,485 $ 473 $ 342 $ 82
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.09% 0.75%+
Ratio of net investment income/(loss) to average
net assets ( 0.66)% ( 0.54)% ( 0.19)% 0.61%+
Portfolio turnover rate 161% 159% 69% 25%
</TABLE>
* LifeGoal Growth Portfolio Investor C Shares
commenced investment operations on October 2, 1996.
Shares were offered to the public on October 15,
1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
<TABLE>
<CAPTION>
LifeGoal Balanced Growth
Portfolio For a Share outstanding throughout each period
Investor A Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 10.94 $ 9.95 $ 10.05
Net investment income 0.34 0.25 0.28 0.19
Net realized and unrealized gain/(loss) on
investments 1.53 0.21 1.79 ( 0.10)
Net increase in net assets resulting from investment
operations 1.87 0.46 2.07 0.09
Distributions:
Distributions from net investment income ( 0.37) ( 0.25) ( 0.27) ( 0.19)
Distributions in excess of net investment income ( 0.04) -- ( 0.31) --
Distributions from net realized capital gains ( 0.29) ( 0.33) ( 0.50) --
Total distributions ( 0.70) ( 0.58) ( 1.08) ( 0.19)
Net asset value, end of period $ 11.99 $ 10.82 $ 10.94 $ 9.95
Total return++ 18.03% 4.44% 21.76% 0.86%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,298 $1,308 $ 489 $ 94
Ratio of operating expenses to average net
assets+++ 0.50% 0.50% 0.50% 0.50%+
Ratio of net investment income to average net
assets 3.12% 2.52% 2.62% 3.69%+
Portfolio turnover rate 124% 121% 94% 1%
</TABLE>
* LifeGoal Balanced Growth Portfolio Investor A
Shares commenced investment operations on October 2,
1996. Shares were offered to the public on October
15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
55
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Balanced Growth
Portfolio For a Share outstanding throughout each period
Investor B Shares Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a)*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 10.92 $ 10.88
Net investment income 0.26 0.17 0.11
Net realized and unrealized gain on investments 1.54 0.22 0.87
Net increase in net assets resulting from investment
operations 1.80 0.39 0.98
Distributions:
Distributions from net investment income ( 0.29) ( 0.16) ( 0.20)
Distributions in excess of net investment income ( 0.04) -- ( 0.24)
Distributions from net realized capital gains ( 0.29) ( 0.33) ( 0.50)
Total distributions ( 0.62) ( 0.49) ( 0.94)
Net asset value, end of period $ 12.00 $ 10.82 $ 10.92
Total return++ 17.26% 3.78% 9.70%
=============================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $9,789 $8,925 $4,917
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.25%+
Ratio of net investment income to average net
assets 2.37% 1.77% 1.87%+
Portfolio turnover rate 124% 121% 94%
</TABLE>
* LifeGoal Balanced Growth Portfolio Investor B
Shares commenced investment operations on August 13,
1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
<TABLE>
<CAPTION>
LifeGoal Balanced Growth
Portfolio For a Share outstanding throughout each period
Investor C Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.92 $ 10.92 $ 9.95 $ 10.05
Net investment income 0.26 0.20 0.23 0.19
Net realized and unrealized gain/(loss) on
investments 1.55 0.26 1.78 ( 0.10)
Net increase in net assets resulting from investment
operations 1.81 0.46 2.01 0.09
Distributions:
Distributions from net investment income ( 0.31) ( 0.13) ( 0.25) ( 0.19)
Distributions in excess of net investment income ( 0.04) -- ( 0.29) --
Distributions from net realized capital gains ( 0.29) ( 0.33) ( 0.50) --
Total distributions ( 0.64) ( 0.46) ( 1.04) ( 0.19)
Net asset value, end of period $ 12.09 $ 10.92 $ 10.92 $ 9.95
Total return++ 17.22% 4.43% 21.10% 0.85%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,092 $ 266 $ 737 $ 18
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.09% 0.75%+
Ratio of net investment income to average net
assets 2.37% 1.77% 2.03% 3.44%+
Portfolio turnover rate 124% 121% 94% 1%
</TABLE>
* LifeGoal Balanced Growth Portfolio Investor C
Shares commenced investment operations on October 2,
1996.
Shares were offered to the public on October 15,
1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
56
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Income and Growth
Portfolio For a Share outstanding throughout each period
Investor A Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.89 $ 10.71 $ 9.97 $ 10.03
Net investment income 0.48 0.36 0.41 0.31
Net realized and unrealized gain/(loss) on
investments 0.03 0.35 0.89 ( 0.06)
Net increase in net assets resulting from investment
operations 0.51 0.71 1.30 0.25
Distributions:
Distributions from net investment income ( 0.48) ( 0.33) ( 0.38) ( 0.31)
Distributions in excess of net investment income -- -- ( 0.11) --
Distributions from net realized capital gains ( 0.23) ( 0.20) ( 0.07) --
Total distributions ( 0.71) ( 0.53) ( 0.56) ( 0.31)
Net asset value, end of period $ 10.69 $ 10.89 $ 10.71 $ 9.97
Total return++ 4.93% 6.92% 13.38% 2.54%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 789 $1,347 $ 126 $ 131
Ratio of operating expenses to average net
assets+++ 0.50% 0.50% 0.50% 0.50%+
Ratio of net investment income to average net
assets 4.53% 3.74% 3.92% 6.09%+
Portfolio turnover rate 96% 107% 64% 2%
</TABLE>
* LifeGoal Income and Growth Portfolio Investor A
Shares commenced investment operations on October 2,
1996. Shares were offered to the public on October
15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
<TABLE>
<CAPTION>
LifeGoal Income and Growth
Portfolio For a Share outstanding throughout each period
Investor B Shares Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a)*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.89 $ 10.70 $ 10.51
Net investment income 0.41 0.28 0.19
Net realized and unrealized gain on investments 0.03 0.35 0.36
Net increase in net assets resulting from investment
operations 0.44 0.63 0.55
Distributions:
Distributions from net investment income ( 0.40) ( 0.24) ( 0.22)
Distributions in excess of net investment income -- -- ( 0.07)
Distributions from net realized capital gains ( 0.23) ( 0.20) ( 0.07)
Total distributions ( 0.63) ( 0.44) ( 0.36)
Net asset value, end of period $ 10.70 $ 10.89 $ 10.70
Total return++ 4.25% 6.16% 5.33%
=============================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,645 $4,806 $1,212
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.25%+
Ratio of net investment income to average net
assets 3.78% 2.99% 3.17%+
Portfolio turnover rate 96% 107% 64%
</TABLE>
* LifeGoal Income and Growth Portfolio Investor B
Shares commenced investment operations on August 7,
1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
57
<PAGE>
<TABLE>
<CAPTION>
LifeGoal Income and Growth
Portfolio For a Share outstanding throughout each period
Investor C Shares Year ended Year ended Year ended Period ended
03/31/00(a) 03/31/99 03/31/98(a) 03/31/97*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.90 $ 10.70 $ 9.97 $ 10.03
Net investment income 0.40 0.31 0.36 0.31
Net realized and unrealized gain/(loss) on
investments 0.03 0.31 0.89 ( 0.06)
Net increase in net assets resulting from investment
operations 0.43 0.62 1.25 0.25
Distributions:
Distributions from net investment income ( 0.43) ( 0.22) ( 0.35) ( 0.31)
Distributions in excess of net investment income -- -- ( 0.10) --
Distributions from net realized capital gains ( 0.23) ( 0.20) ( 0.07) --
Total distributions ( 0.66) ( 0.42) ( 0.52) ( 0.31)
Net asset value, end of period $ 10.67 $ 10.90 $ 10.70 $ 9.97
Total return++ 4.11% 6.02% 12.83% 2.54%
==============================================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 848 $ 100 $ 87 $ 1
Ratio of operating expenses to average net
assets+++ 1.25% 1.25% 1.09% 0.75%+
Ratio of net investment income to average net
assets 3.78% 2.99% 3.33% 5.84%+
Portfolio turnover rate 96% 107% 64% 2%
</TABLE>
* LifeGoal Income and Growth Portfolio Investor C
Shares commenced investment operations on October 2, 1996.
Shares were offered to the public on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
+++ The Portfolio's expenses do not include the
expenses of the underlying funds.
(a) Per share net investment income has been
calculated using the monthly average shares method.
58
<PAGE>
[GRAPHIC]
This glossary includes explanations of the important terms that
may be used in this prospectus. Some of the terms explained may
apply to Nations Funds not included in this prospectus.
[GRAPHIC]
Terms used in this prospectus
Asset-backed security - a debt security that gives you an interest in a pool
of assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.
Average dollar-weighted maturity - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.
Bank obligation - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.
Capital gain or loss - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
Cash equivalents - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's
Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).
Commercial paper - a money market instrument issued by a large company.
Common stock - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
Convertible debt - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
Convertible security - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.
Corporate obligation - a money market instrument issued by a corporation or
commercial bank.
59
<PAGE>
Debt security - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
Depositary receipts - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates
traded in U.S. markets representing an interest of a foreign company. They
were created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.
Dividend yield - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
Duration - a measure used to estimate a security's or portfolio's sensitivity
to changes in interest rates. For example, if interest rates rise by one
percentage point, the share price of a fund with a duration of five years
would decline by about 5%. If interest rates fall by one percentage point, the
fund's share price would rise by about 5%.
Equity security - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.
First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest
short-term rating from a nationally recognized statistical rating organization
(NRSRO) or if unrated, is determined by the fund's portfolio management team
to be of comparable quality, or is a money market fund issued by a registered
investment company, or is a government security.
Fixed income security - an intermediate to long-term debt security that
matures in more than one year.
Foreign security - a debt or equity security issued by a foreign company or
government.
Fundamental analysis - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
Futures - a contract to buy or sell an asset or an index of securities at a
specified price on a specified future date. The price is set through a futures
exchange.
60
<PAGE>
Investment grade - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other NRSROs) based on the issuer's ability to pay interest and repay
principal on time. The portfolio management team may consider an unrated debt
security to be investment grade if the team believes it is of comparable
quality. Please see the SAI for more information about credit ratings.
Lehman Aggregate Bond Index - an index made up of the Lehman
Government/Corporate Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index. These indices include U.S. government agency
and U.S. Treasury securities, corporate bonds and mortgage-backed securities.
All dividends are reinvested.
Liquidity - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
Money market instrument - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
Mortgage-backed security or Mortgage-related security - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.
Municipal security (obligation) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income is exempt from
federal income taxes and is generally exempt from state taxes if you live in
the state that issued the security. If you live in the municipality that
issued the security, interest income may also be exempt from local taxes.
Non-diversified - a fund that holds securities of fewer issuers than other
kinds of funds. Non-diversified funds tend to have greater price swings than
more diversified funds because events affecting one or more of its securities
may have a disproportionately large effect on the fund.
Preferred stock - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the
company's remaining assets before common shareholders and after bondholders
and other creditors.
61
<PAGE>
Quantitative analysis - an analysis of financial information about a company
or security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
Real Estate Investment Trust (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans or interests.
Repurchase agreement - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.
Right - a temporary privilege allowing investors who already own a common
stock to buy additional shares directly from the company at a specified price
or formula.
S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.
Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security
that is an eligible investment for money market funds, but is not a first-tier
security.
Senior security - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
Settlement date - The date on which an order is settled either by payment or
delivery of securities.
Trade date - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. government obligations - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
U.S. Treasury obligation - a debt security issued by the U.S. Treasury.
Warrant - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1) S&P has not reviewed any stock included in the S&P 500 for its investment
merit. S&P determines and calculates its index independently of the Funds and
is not a sponsor or affiliate of the Funds. S&P gives no information and makes
no statements about the suitability of investing in the Funds or the ability of
its index to track stock market performance. S&P makes no guarantees about the
index, any data included in it and the suitability of the index or its data for
any purpose. "Standard and Poor's" and "S&P 500" are trademarks of The
McGraw-Hill Companies, Inc.
62
<PAGE>
[GRAPHIC]
Where to find more information
You'll find more information about the LifeGoal Portfolios in the following
documents:
Annual and semi-annual reports
The annual and semi-annual reports contain information about Portfolio
investments and performance, the financial statements and the
independent accountants' reports. The annual report also includes a
discussion about the market conditions and investment strategies that
had a significant effect on each Portfolio's performance during the
period covered.
[GRAPHIC]
Statement of Additional Information
The SAI contains additional information about the Portfolios and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other
information about the Portfolios and make shareholder inquiries by
contacting Nations Funds:
By telephone: 1.800.321.7854
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nations-funds.com
Information about the Portfolios can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the
SEC at 1-202-942-8090. The reports and other information about the
Portfolios are available on the EDGAR Database on the SEC's Internet
site at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
SEC file number:
Nations LifeGoal Funds, Inc. 811-07745
LGPROIX-8/00 [NATIONS FUNDS LOGO]
<PAGE>
NATIONS LIFEGOAL FUNDS, INC.
Statement of Additional Information
NATIONS LIFEGOAL GROWTH PORTFOLIO
NATIONS LIFEGOAL BALANCED GROWTH PORTFOLIO
NATIONS LIFEGOAL INCOME AND GROWTH PORTFOLIO
Primary A, Primary B, Investor A, Investor B and Investor C Shares
August 1, 2000
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to shares representing interests in the above listed
three investment portfolios of Nations LifeGoal Funds, Inc. (individually, a
"LifeGoal Portfolio" and collectively, the "LifeGoal Portfolios"). This SAI is
not a prospectus and should be read only in conjunction with the current
prospectuses for the aforementioned LifeGoal Portfolios related to the class or
series of shares in which one is interested, dated August 1, 2000, for the
Primary A, Primary B, Investor A, Investor B and Investor C Shares (each a
"Prospectus"). All terms used in this SAI that are defined in the Prospectuses
will have the same meanings assigned in the Prospectuses. The financial
statements for the LifeGoal Portfolios contained in their annual reports dated
March 31, 2000, are hereby incorporated into this SAI by reference. Copies of
the Prospectuses and Annual Reports for the LifeGoal Portfolios may be obtained
without charge by writing Nations Funds c/o Stephens Inc., One Bank of America
Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by calling Nations Funds
at 1-800-982-2271.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HISTORY OF THE COMPANY....................................................................... 1
DESCRIPTION OF THE COMPANY AND THE LIFEGOAL PORTFOLIOS ...................................... 1
General.............................................................................. 1
Investment Limitations .............................................................. 2
ADDITIONAL INFORMATION ABOUT THE UNDERLYING NATIONS FUNDS.................................... 4
Permissible Fund Investments......................................................... 4
Asset-Backed Securities.............................................................. 8
Borrowings........................................................................... 12
Commercial Instruments............................................................... 12
Combined Transactions................................................................ 13
Convertible Securities............................................................... 13
Corporate Debt Securities............................................................ 14
Custodial Receipts................................................................... 14
Currency Swaps....................................................................... 15
Delayed Delivery Transactions........................................................ 15
Dollar Roll Transactions ............................................................ 15
Equity Swap Contracts ............................................................... 16
Foreign Currency Transactions ....................................................... 16
Futures, Options and Other Derivative
Instruments.................................................................... 17
Risk Factors Associated with Futures and Options Transactions........................ 23
Guaranteed Investment Contracts...................................................... 33
Insured municipal securities ........................................................ 33
Interest Rate Transactions .......................................................... 33
Lower Rated Debt Securities.......................................................... 34
municipal securities ................................................................ 35
Options on Currencies................................................................ 38
Other Investment Companies........................................................... 38
Participation Interests and Company Receipts......................................... 38
Real Estate Investment Trusts........................................................ 39
Repurchase Agreements ............................................................... 39
Reverse Repurchase Agreements ....................................................... 39
Securities Lending................................................................... 39
Short Sales.......................................................................... 40
Special Situations................................................................... 40
Stand-by Commitments ................................................................ 40
Stripped Securities.................................................................. 41
U.S. and Foreign Bank Obligations.................................................... 41
U.S. Government Obligations.......................................................... 42
Use of Segregated and Other Special Accounts......................................... 42
Variable and Floating Rate Instruments .............................................. 43
Warrants............................................................................. 44
When-Issued Purchases and Forward Commitments ...................................... 44
Portfolio Turnover................................................................... 44
Investment Risks..................................................................... 44
MANAGEMENT OF THE COMPANY.................................................................... 45
Compensation Table................................................................... 49
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY, TRANSFER AGENCY,
OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION ARRANGEMENTS.................................................................... 51
Investment Advisory and Sub-Adviser of the LifeGoal Portfolios....................... 51
Investment Advisory and Sub-Adviser of the Underlying Nations Funds.................. 54
Administrator, Co-Administrator and Sub-Administrator................................ 58
Distributor.......................................................................... 60
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares........ 61
Information Applicable to Investor A, Investor B and Investor C Shares............... 64
Shareholder Administration Plan (Primary B Shares)................................... 64
Expenses............................................................................. 67
Transfer Agents and Custodian........................................................ 68
Independent Accountant and Reports................................................... 68
Counsel.............................................................................. 68
DESCRIPTION OF SHARES........................................................................ 68
Net Asset Value Determination........................................................ 70
Exchanges............................................................................ 71
Dividends and Distributions.......................................................... 71
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 72
General.............................................................................. 72
Excise Tax .......................................................................... 72
Taxation of Investments of a Regulated Investment Company............................ 73
Capital Gain Distribution............................................................ 74
Disposition of Fund Shares........................................................... 74
Federal Income Tax Rates............................................................. 75
Backup Withholding................................................................... 75
Corporate Shareholders and Dividends Received Deduction.............................. 75
Foreign Shareholders................................................................. 76
New Regulations...................................................................... 76
Foreign Taxes........................................................................ 76
Other Matters........................................................................ 76
SECURITY HOLDERS............................................................................. 76
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 79
Yield Calculations................................................................... 79
Total Return Calculations............................................................ 80
SCHEDULE A - Description of Ratings........................................................... A-1
</TABLE>
iii
<PAGE>
HISTORY OF THE COMPANY
----------------------
Nations LifeGoal Funds, Inc. (the "Company") is a diversified open-end
management investment company organized as a corporation under the laws of the
State of Maryland on July 3, 1996. The Company offers shares of common stock
which represent interests in one of three separate LifeGoal Portfolios. This SAI
relates to the following LifeGoal Portfolios of the Company: LifeGoal Growth
Portfolio, LifeGoal Balanced Growth Portfolio and LifeGoal Income and Growth
Portfolio. Each LifeGoal Portfolio offers the following separate classes of
shares: Primary A Shares, Primary B Shares, Investor A Shares, Investor B and
Investor C Shares. The Company has a fiscal year end of March 31st.
DESCRIPTION OF THE COMPANY AND THE LIFEGOAL PORTFOLIOS
------------------------------------------------------
General
This SAI relates to the shares of LifeGoal Growth Portfolio, LifeGoal
Balanced Growth Portfolio and LifeGoal Income and Growth Portfolio. The Primary
A and Primary B Shares are collectively referred to herein as "Primary Shares"
and the Investor A, Investor B and Investor C Shares are collectively referred
to as "Investor Shares." Banc of America Advisors, Inc. ("BAAI") is the
investment adviser to the LifeGoal Portfolios. Banc of America Capital
Management, Inc. ("BACAP") is investment sub-adviser. As used herein the
"Adviser" shall mean BAAI and/or BACAP as the context may require.
Each LifeGoal Portfolio may (i) own more than 3% of the total
outstanding stock of a registered investment company which is a series of
Nations Fund, Inc., Nations Fund Trust, Nations Reserves and Nations Funds
Trust, (ii) invest more than 5% of its assets in any one such investment
company, and (iii) invest more than 10% of it assets, collectively, in Nations
Fund, Inc., Nations Fund Trust, Nations Reserves and Nations Funds Trust. Each
LifeGoal Portfolio will concentrate more than 25% of its assets in the mutual
fund industry. However, each of the underlying mutual funds in which the
LifeGoal Portfolios will invest will not concentrate 25% or more of its total
assets in any one industry.
Shares of each LifeGoal Portfolio of the Company are redeemable at the
net asset value (less, in the case of Investor B and Investor C Shares, any
applicable contingent deferred sales charge ("CDSC")) thereof at the option of
the holders thereof or in certain circumstances at the option of the Company.
For information concerning the methods of redemption and the rights of share
ownership, consult the Prospectuses under the caption "Buying, Selling and
Exchanging Shares."
As used in this SAI and in the Prospectuses, the term "majority of the
outstanding shares" of the Company, a particular LifeGoal Portfolio or a
particular class of shares of a LifeGoal Portfolio means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Company, LifeGoal
Portfolio or class (as appropriate) present at a meeting of shareholders, if the
holders of more than 50% of the outstanding shares entitled to vote, are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company, LifeGoal Portfolio or class.
The Board of Directors may classify or reclassify any unissued shares
of the Company into shares of any class, classes or LifeGoal Portfolio in
addition to those already authorized by setting or changing in any one or more
respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption, of such shares and, pursuant to such classification or
reclassification to increase or decrease the number of authorized shares of any
LifeGoal Portfolio or class. Any such classification or reclassification will
comply with the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act"). Fractional shares shall have the same rights as full shares to
the extent of their proportionate interest.
As of August 1, 2000, Bank of America, N.A. ("Bank of America") and its
affiliates possessed or shared power to dispose or vote with respect to more
than 25% of the outstanding shares of the Company and therefore could be
considered to be a controlling person of the Company for purposes of the 1940
Act. For more detailed information concerning the percentage of each class or
series of shares over which Bank of America and its affiliates possessed or
shared power to dispose or vote as of a certain date, see the discussion on
Certain Record and Beneficial Holders.
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Information concerning each LifeGoal Portfolio's investment objective
is set forth in each of the Prospectuses. There can be no assurance that the
LifeGoal Portfolios will achieve their objectives. The principal features of the
LifeGoal Portfolios' investment programs and the primary risks associated with
those investment programs are discussed in the Prospectuses. The principal
features and certain risks of the underlying Nations Funds also are discussed in
the Prospectuses.
Under extraordinary circumstances, the LifeGoal Portfolios may invest
100% of their assets in the Prime Fund. Such circumstances that would prompt a
shift in the allocation of assets for defensive purposes by the Adviser include
concerns about a precipitous decline in the net asset value of any of the
underlying Nations Funds or similar volatility in the Nasdaq National Market,
New York Stock Exchange or American Stock Exchange. The designation of
circumstances as sufficiently extraordinary to permit this defensive investing
is within the Adviser's discretion.
Although each LifeGoal Portfolio intends to invest substantially all of
its assets in underlying Nations Funds, each LifeGoal Portfolio reserves the
right to invest assets not so invested in government securities, repurchase
agreements and money market instruments.
Investment Limitations
Each LifeGoal Portfolio is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the LifeGoal Portfolio's outstanding shares.
The LifeGoal Portfolios may not:
1. Borrow money or issue senior securities as defined in the 1940 Act except
that (a) a Portfolio may borrow money from banks for temporary or emergency
purposes in amounts up to one-third of the value of such Portfolio's total
assets at the time of borrowing, provided that borrowings in excess of 5% of
the value of such Portfolio's total assets will be repaid prior to the
purchase of additional portfolio securities by such Portfolio, (b) a
Portfolio may enter into commitments to purchase securities in accordance
with the Portfolio's investment program, including delayed delivery and
when-issued securities, which commitments may be considered the issuance of
senior securities, and (c) a Portfolio may issue multiple classes of shares
in accordance with SEC regulations or exemptions under the 1940 Act. The
purchase or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities.
2. Purchase any securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Portfolio 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.
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such securities
in accordance with the Portfolio's investment program may be deemed an
underwriting. This restriction shall not limit a Fund's ability to invest in
securities issued by other registered investment companies.
4. Invest in real estate or real estate limited partnership interests. (Each
Portfolio may, however, purchase and sell securities secured by real estate
or interests therein or issued by issuers which invest in real estate or
interests therein.) This restriction does not apply to real estate limited
partnerships listed on a national stock exchange (e.g., the New York Stock
Exchange).
5. Purchase or sell commodity contracts except that each Portfolio may, to
the extent appropriate under its investment policies, purchase publicly
traded securities of companies engaging in whole or in part in such
activities, may enter into futures contracts and related options, may engage
in transactions on a when-issued or forward commitment basis, and may enter
into forward currency contracts in accordance with its investment policies.
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6. Make loans, except that a Portfolio may purchase and hold debt
instruments (whether such instruments are part of a public offering or
privately placed), may enter into repurchase agreements and may lend
portfolio securities in accordance with its investment policies.
7. The LifeGoal Portfolios will be diversified and each Portfolio may not
purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
securities of other investment companies) if, immediately after such
purchase, more than 5% of the value of such Portfolio's total assets would
be invested in the securities of such issuer, except that up to 25% of the
value of the Portfolio's total assets may be invested without regard to
these limitations and with respect to 75% of such Portfolio's assets, such
Portfolio will not hold more than 10% of the voting securities of any
issuer.
8. Each LifeGoal Portfolio will concentrate its investments in the
securities of other investment companies.
In addition, certain non-fundamental investment restrictions are also
applicable to the LifeGoal Portfolio, including the following:
1. No Portfolio of the Company will purchase or retain the securities of any
issuer if the officers, or directors of the Company, its advisers, or
managers owning beneficially more than one half of one percent of the
securities of each issuer together own beneficially more than five
percent of such securities.
2. No Portfolio of the Company will purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for
less than three years, if by reason thereof the value of such Portfolio's
investment in such classes of securities would exceed 5% of such
Portfolio's total assets. For purposes of this limitation, issuers
include predecessors, sponsors, controlling persons, general partners,
guarantors and originators of underlying assets which have less than
three years of continuous operation or relevant business experience.
3. No Portfolio will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Portfolio's
transactions in futures contracts and related options, and (c) a
Portfolio may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
4. No Portfolio will invest in warrants, valued at the lower of cost or
market, in excess of 5% of the value of such Portfolio's assets, and no
more than 2% of the value of the Portfolio's net assets may be invested
in warrants that are not listed on principal domestic or foreign
exchanges (for purposes of this undertaking, warrants acquired by a
Portfolio in units or attached to securities will be deemed to have no
value).
5. No Portfolio of the Company will purchase securities of companies for
the purpose of exercising control.
6. No Portfolio of the Company will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits with
maturities in excess of seven days, restricted securities, and other
securities which are not readily marketable. For purposes of this
restriction, illiquid securities shall not include securities which may
be resold under Rule 144A under the Securities Act of 1933 that the Board
of Directors, or its delegate, determines to be liquid, based upon the
trading markets for the specific security.
7. No Portfolio of the Company will mortgage, pledge or hypothecate any
assets except to secure permitted borrowings and then only in an amount
up to one-third of the value of the Portfolio's total assets at the time
of borrowing. For purposes of this limitation, collateral arrangements
with respect to the writing of options, futures contracts, options on
futures contracts, and collateral arrangements with respect to initial
and variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.
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8. No Portfolio of the Company will purchase oil, gas or mineral leases or
other interests (a Portfolio may, however, purchase and sell the
securities of companies engaged in the exploration, development,
production, refining, transporting and marketing of oil, gas or
minerals).
Notwithstanding the foregoing restrictions, the underlying mutual funds
in which LifeGoal Portfolios may invest have adopted their own investment
restrictions which may be more or less restrictive than those listed above,
thereby allowing a LifeGoal Portfolio to participate in certain investment
strategies indirectly that are prohibited under the fundamental and
non-fundamental investment restrictions listed above and in a LifeGoal Portfolio
Prospectus. The investment restrictions of these underlying mutual funds are set
forth in their respective statements of additional information.
ADDITIONAL INFORMATION ABOUT THE UNDERLYING NATIONS FUNDS
---------------------------------------------------------
Permissible Fund Investments
In addition to the principal investment strategies for each underlying
Nations Fund (each a "Fund"), which are outlined in such Funds' prospectuses,
each Fund also may invest in other types of securities in percentages of less
than 10% of its total assets (unless otherwise indicated, e.g., most Funds may
invest in money market instruments without limit during temporary defensive
periods). These types of securities are listed below for each portfolio and then
are described in more detail after this sub-section.
Nations Intermediate Bond Fund (the "Intermediate Bond Fund"), Nations
Blue Chip Fund (the "Blue Chip Fund"), Nations Marsico Focused Equities Fund
(the "Marsico Focused Equities Fund"), and Nations International Equity Fund
(the "International Equity Fund") are sometimes referred to herein as "Feeder
Funds." The Feeder Funds seek to achieve their respective investment objectives
by investing substantially all of their assets in diversified investment
portfolios having the same investment objective as corresponding master
portfolios (each a "Master Portfolio" and collectively, the "Master Portfolios")
of Nations Master Investment Trust ("NMIT"), an open-end management investment
company in the Nations Funds Family. The Intermediate Bond Fund invests
substantially all of its assets in Nations Intermediate Bond Master Portfolio
(the "Intermediate Bond Master Portfolio"). The Blue Chip Fund invests
substantially all of its assets in Nations Blue Chip Master Portfolio (the "Blue
Chip Master Portfolio"). The Marsico Focused Equities Fund invests substantially
all of its assets in Nations Marsico Focused Equities Master Portfolio (the
"Marsico Focused Equities Master Portfolio"). The International Equity Fund
invests substantially all of its assets in Nations International Equity Master
Portfolio (the "International Equity Master Portfolio").
The Domestic Stock Funds
Nations Value Fund (the "Value Fund"): In addition to the types of
securities described in its Prospectus, the Fund may invest in: U.S. Treasury
bills, notes and bonds and other instruments issued directly by the U.S.
Government ("U.S. Treasury Obligations"), other obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies and
instrumentalities (together with U.S. Treasury Obligations, "U.S. Government
Obligations"); investment grade debt securities of domestic companies; various
money market instruments and repurchase agreements.
Nations Small Company Fund (the "Small Company Fund"): In addition to
the types of securities described in the Fund's Prospectus, the Fund may invest
in: debt securities, unless the Fund assumes a temporary defensive position.
Debt securities, if any, purchased by the Fund will be rated "AA" or above by
S&P or "Aa" or above by Moody's or, if unrated, determined by the Adviser to be
of comparable quality. For temporary defensive purposes, the Fund may invest up
to 100% of its assets in debt securities, including short-term and
intermediate-term obligations of corporations, the U.S. and foreign governments
and international organizations such as the World Bank, and money market
instruments. The Fund may invest in common stocks (including convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements.
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Nations Strategic Growth Fund (the "Strategic Growth Fund"): In
addition to the types of securities described in the Fund's Prospectus, the Fund
may invest in those securities described in the general section below.
Marsico Focused Equities Fund: In addition to the types of securities
described in the Fund's Prospectuses, this Fund may invest in: preferred stock,
warrants, convertible securities and debt securities; zero coupon, pay- in-kind
and step coupon securities, and may invest without limit in indexed/structured
securities. The Fund also may invest its assets in high-yield/high-risk
securities, such as lower grade debt securities, high-grade commercial paper,
certificates of deposit, and repurchase agreements, and may invest in short-term
debt securities as a means of receiving a return on idle cash.
The Fund may hold cash or cash equivalents and invest without limit in
U.S. Government Obligations and short-term debt securities or money market
instruments when the Adviser: (i) believes that market conditions are not
favorable for profitable investing; (ii) is unable to local favorable
opportunities; or (iii) determines that a temporary defensive position is
advisable or necessary to meet anticipated redemption requests. In other words,
the Fund does not always stay fully invested in stocks and bonds. The Fund also
may use options, futures, forward currency contracts and other types of
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. The Fund also may purchase securities on a when-issued, delayed
delivery or forward commitment basis.
Blue Chip Fund: In addition to the types of securities described in the
Fund's Prospectus, the Blue Chip Master Portfolio (in which the Fund invests all
of its assets) may invest in cash equivalents, which include the following
short-term interest rate bearing instruments--obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities (some of which may be
subject to repurchase agreements), certificates of deposit, bankers'
acceptances, time deposits and other interest-bearing deposits issued by
domestic and foreign banks and foreign branches of U.S. banks, foreign
government securities and commercial papers issued by U.S. and foreign issuers
which is rated at the time of purchase at least Prime-2 by Moody's or A-2 by
S&P, Duff & Phelps and Fitch IBCA. For a description of ratings, see Appendix A
to this SAI. The Master Portfolio also may invest in certain specified
derivative securities including: exchange-traded options, over-the-counter
options executed with primary dealers, including long calls and puts and covered
calls to enhance return; and CFTC-approved U.S. and foreign exchange-traded
financial futures and options thereon for market exposure risk-management. The
Master Portfolio also may lend its portfolios securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. It also may invest in real
estate investment trust securities, securities issued by other investment
companies, consistent with the Master Portfolio's investment objective and
policies.
General: Notwithstanding that each Domestic Stock Fund may invest in
each type of security listed above in percentages of less that 10% of that
Fund's total assets, each Equity Fund (except Marsico Focused Equities Fund) may
invest up to 20% of its assets in foreign securities. While each Equity Fund
reserves the right to so invest, investing in foreign securities is not
considered a principal investment strategy of the Equity Funds. In addition each
Equity Fund discussed above also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Equity Fund
also may invest in real estate investment trust securities. In addition, each
Equity Fund may invest in securities issued by other investment companies,
consistent with the Fund's investment objective and policies and repurchase
agreements. The Marsico Focused Equities Fund may invest in forward foreign
exchange contracts.
The International Stock Funds
International Equity Fund: In addition to the types of securities
described in the Fund's Prospectus, the Fund may invest in: real estate
investment trust securities and, for temporary defensive purposes, substantially
all of its assets in U.S. financial markets or U.S. dollar-denominated
instruments. The Fund also may invest in convertible securities, preferred
stocks, bonds, notes and other fixed-income securities, including Eurodollar and
foreign government securities.
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Nations International Value Fund (the "International Value Fund"): In
addition to the types of securities described in the Fund's Prospectus, the Fund
may invest in: short-term debt instruments; purchase and write covered call
options on specific portfolio securities and may purchase and write put and call
options on foreign stock indices listed on foreign and domestic exchanges
options and futures contracts on securities, securities lending, forward foreign
exchange contracts and repurchase agreements. The Fund also may invest in ADRs,
GDRs, EDRs and ADSs and invest in foreign currency exchange contracts to convert
foreign currencies to and from the U.S. dollar and to hedge against changes in
foreign currency exchange rates.
General: Each Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
CFTC and options thereon for market exposure risk management. Each Fund may lend
its portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. Each International Stock Fund also may invest in real estate
investment trust securities. In addition, each International Stock Fund may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies and repurchase agreements. Each Fund
also may invest in forward foreign exchange contracts.
Government Corporate Bond Funds
Nations Short-Term Income Fund (the "Short-Term Income Fund"): In
addition to the types of securities described in the Fund's Prospectus, the Fund
may invest in: foreign securities, dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments, real
estate investment trust securities, municipal securities rated by one nationally
recognized statistical rating organization ("NRSRO"), or if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated,
high quality money market instruments, repurchase agreements and cash.
Nations Investment Grade Bond Fund (the "Investment Grade Bond Fund"):
In addition to the types of securities described in the Fund's Prospectus, the
Fund may invest in: foreign securities, corporate convertible and
non-convertible debt obligations, including bonds, notes and debentures rated
investment grade at the time of purchase by one of the NRSROs, or if not so
rated, determined by the Adviser to be of comparable quality to instruments so
rated.; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, an real estate investment trust securities. The Fund also
may invest in "high quality" money market instruments, repurchase agreements and
cash. Such obligations may include those issued by foreign banks and foreign
branches of U.S. banks.
Nations Strategic Income Fund (the "Strategic Income Fund"): In
addition to the types of securities described in the Fund's Prospectus, the Fund
may invest in: foreign securities, asset-backed securities and municipal
securities rated by one of the NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality. The Fund also may invest in "high quality"
money market instruments, repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks.
General: Each of the Government Corporate Bond Funds may invest in
certain specified derivative securities, including: interest rate swaps, caps
and floors for hedging purposes, exchange-traded options, over-the-counter
options executed with primary dealers, including long term calls and puts and
covered calls, and U.S. and foreign exchange-traded financial futures and
options thereon approved by the CFTC for market exposure risk management. Each
of the Funds also may lend their portfolio securities to qualified institutional
investors and may invest in repurchase agreements, restricted, private placement
and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and in dollar roll transactions. Additionally, each Fund
may purchase securities issued by other investment companies, consistent with
the Funds' investment objectives and policies. The Funds also may invest in
instruments issued by trusts or certain partnerships including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such trusts and partnerships.
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Money Market Fund
Nations Prime Fund (the "Prime Fund"): In addition to the types of
securities described in the Prospectus, the Fund may lend its portfolios
securities to qualified institutional investors and may invest in reverse
repurchase agreements. The Fund may also invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies.
Additional information on the particular types of securities in which
certain Funds may invest in is set forth below.
Asset-Backed Securities
In General. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of
the prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Government National Mortgage
Association ("Ginnie Mae" or "GNMA"), Federal National Mortgage Association
("Fannie Mae" or "FNMA") or Federal Home Loan Mortgage Corporation ("Freddie
Mac" or "FHLMC"). Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
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The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives
some of the interest and most of the principal from the mortgage assets, while
the other class receives most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial investment
in these securities. The market value of any class which consists primarily or
entirely of principal payments generally is unusually volatile in response to
changes in interest rates.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings, or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments. Estimated average life
will be determined by the Adviser and used for the purpose of determining the
average weighted maturity and duration of the Funds.
Additional Information on Mortgage-Backed Securities.
----------------------------------------------------
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
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Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the FHLMC. FHLMC is a
corporate instrumentality of the U.S. Government and was created by Congress in
1970 for the purpose of increasing the availability of mortgage credit for
residential housing. Its stock is owned by the twelve Federal Home Loan Banks.
FHLMC issues Participation Certificates ("PC's"), which represent interests in
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal.
FNMA is a Government sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved sellers/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by approved institutions and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
A Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
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Underlying Mortgages
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
Returns on Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
Non-Mortgage Asset-backed Securities. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
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The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
While the market for asset-backed securities is becoming increasingly
liquid, the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
Borrowings
Nations Fund Trust, Nations Fund, Inc., Nations Funds Trust and Nations
Reserves participate in an uncommitted line of credit provided by The Bank of
New York under a line of credit agreement (the "Agreement"). Advances under the
Agreement are taken primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. Interest on borrowings is payable at the federal
funds rate plus .50% on an annualized basis. The Agreement requires, among other
things, that each participating Fund maintain a ratio of no less than 4 to 1 net
assets (not including funds borrowed pursuant to the Agreement) to the aggregate
amount of indebtedness pursuant to the Agreement. Specific borrowings by a Fund
under the Agreement over the last fiscal year, if any, can by found in the
Funds' Annual Reports for the year ended March 31, 2000.
Commercial Instruments
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. The Prime Fund will limit purchases
of commercial instruments to instruments which: (a) if rated by at least two
NRSROs, are rated in the highest rating category for short-term debt obligations
given by such organizations, or if only rated by one such organization, are
rated in the highest rating category for short-term debt obligations given by
such organization; or (b) if not rated, are (i) comparable in priority and
security to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
Nations Fund Inc.'s Board of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated
in a manner consistent with such Fund's investment policies and objectives. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
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that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Prime Fund are met. Variable-rate
instruments acquired by a Fund will be rated at a level consistent with such
Fund's investment objective and policies of high quality as determined by a
major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. See also the discussion of variable- and
floating-rate instruments in this SAI.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
Certain Funds also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Fund acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured and most impose restrictive covenants which must be met by the
borrower and which are generally more stringent than the covenants available in
publicly traded debt securities. However, interests in some loans may not be
secured, and the Fund will be exposed to a risk of loss if the borrower
defaults. Loan participations also may be purchased by the Fund when the
borrowing company is already in default. In purchasing a loan participation, the
Fund may have less protection under the federal securities laws than it has in
purchasing traditional types of securities. The Fund's ability to assert its
rights against the borrower will also depend on the particular terms of the loan
agreement among the parties.
Combined Transactions
Certain Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions.
Convertible Securities
Certain Funds may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. All convertible securities purchased by the Fund will be
rated in the top two categories by an NRSRO or, if unrated, determined by the
Adviser to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments, as well as, an
opportunity for capital appreciation by virtue of their conversion or exchange
features.
The convertible securities in which a Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
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As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion
exchange features. Convertible securities generally are subordinated to other
similar debt securities but not to non-convertible securities of the same
issuer. Convertible bonds, as corporate debt obligations, are senior in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-convertible
securities. Convertible securities may be issued as fixed income obligations
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Corporate Debt Securities
Certain Funds may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each Fund may also
invest in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be
rated investment grade by at least one NRSRO (e.g., BBB or above by Standard &
Poor's Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Funds will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Funds if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Directors of the Company.
If the rating of any corporate debt security held by a Fund falls below such
ratings or if the Adviser determines that an unrated corporate debt security is
no longer of comparable quality, then such security shall be disposed of in an
orderly manner as quickly as possible. A description of these ratings is
attached as Schedule A to this Statement of Additional Information.
Custodial Receipts
Certain Funds may also acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
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Currency Swaps
Certain Funds also may enter into currency swaps for hedging purposes
and to seek to increase total return. In as much as swaps are entered into for
good faith hedging purposes or are offset by a segregated account as described
below, the Fund and the Adviser believe that swaps do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. The net amount of the
excess, if any, of the Fund's obligations over its entitlement with respect to
each currency swap will be accrued on a daily basis and an amount of cash or
liquid high grade debt securities (i.e., securities rated in one of the top
three ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to
be of comparable credit quality) having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian. The Fund will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
other party thereto is considered to be investment grade by the Adviser.
Delayed Delivery Transactions
In a delayed delivery transaction, the Fund relies on the other party
to complete the transaction. If the transaction is not completed, the Fund may
miss a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
Dollar Roll Transactions
Certain Funds may enter into "dollar roll" transactions, which consist
of the sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the security that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
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Equity Swap Contracts
Certain Funds may from time to time enter into equity swap contracts.
The counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to pay a Fund the amount, if any, by which the notional amount of the
Equity Swap Contract would have increased in value had it been invested in the
stocks comprising the S&P 500 Index in proportion to the composition of the
Index, plus the dividends that would have been received on those stocks. A Fund
will agree to pay to the counterparty a floating rate of interest (typically the
London Inter Bank Offered Rate) on the notional amount of the Equity Swap
Contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
a Fund on any Equity Swap Contract should be the gain or loss on the notional
amount plus dividends on the stocks comprising the S&P 500 Index less the
interest paid by the Fund on the notional amount. A Fund will only enter into
Equity Swap Contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under the Equity Swap Contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Certain Funds may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Fund is obligated to pay the increase (net
of interest) or receive the decrease (plus interest) on the contract to reduce
the amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will
not enter into any Equity Swap Contract or Reverse Equity Swap Contract unless,
at the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed any limitation imposed
by the SEC Staff.
The Adviser does not believe that a Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
Foreign Currency Transactions
Certain Funds may invest in foreign currency transactions. Foreign
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. A Fund may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A Fund may also
purchase and sell foreign currency futures contracts and related options (see
"Purchase and Sale of Currency Futures Contracts and Related Options"). A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
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Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
will direct its custodian to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will segregate cash, U.S. Government securities or
other high-quality debt securities having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
The Funds are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the portfolio back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity basis (purchasing power parity is a method for determining the
relative purchasing power of different currencies by comparing the amount of
each currency required to purchase a typical bundle of goods and services to
domestic markets) and an estimation of short-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).
Futures, Options and Other Derivative Instruments
Futures Contracts in General. A futures contract is an agreement
between two parties for the future delivery of fixed income securities or equity
securities or for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the CFTC and must be executed through a
brokerage firm, known as a futures commission merchant, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange. Presently,
futures contracts are based on such debt securities as long-term U.S. Treasury
Bonds, Treasury Notes, GNMA modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills, bank certificates of deposit, and on indices of
municipal, corporate and government bonds.
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While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
Futures Contracts on Fixed Income Securities and Related Indices. As
noted in their respective Prospectuses, certain Funds may enter into
transactions in futures contracts for the purpose of hedging a relevant portion
of their portfolios. A Fund may enter into transactions in futures contracts
that are based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gain on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gain on the futures contracts
by entering into offsetting transactions on the contract market on which the
initial purchase was effected. In a substantial majority of transactions
involving futures contracts on fixed income securities, a Fund will purchase the
securities upon termination of the long futures positions, but under unusual
market conditions, a long futures position may be terminated without a
corresponding purchase of securities.
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Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
Stock Index Futures Contracts. Certain Funds may sell stock index
futures contracts in order to offset a decrease in market value of its
securities that might otherwise result from a market decline. A Fund may do so
either to hedge the value of its portfolio as a whole, or to protect against
declines, occurring prior to sales of securities, in the value of securities to
be sold. Conversely, a Fund may purchase stock index futures contracts in order
to protect against anticipated increases in the cost of securities to be
acquired.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or a "short"
position in the underlying futures contract (i.e., a sale of such futures
contract) in the case of an option to sell (a "put" option), at a fixed price
(the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
Options on Futures Contracts on Fixed Income Securities and Related
Indices. Certain Funds may purchase put options on futures contracts in which
such Funds are permitted to invest for the purpose of hedging a relevant portion
of their portfolios against an anticipated decline in the values of portfolio
securities resulting from increases in interest rates, and may purchase call
options on such futures contracts as a hedge against an interest rate decline
when they are not fully invested. A Fund would write options on these futures
contracts primarily for the purpose of terminating existing positions.
Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. Certain Funds may purchase put options on stock
index futures contracts, stock indices or equity securities for the purpose of
hedging the relevant portion of their portfolio securities against an
anticipated market-wide decline or against declines in the values of individual
portfolio securities, and they may purchase call options on such futures
contracts as a hedge against a market advance when they are not fully invested.
A Fund would write options on such futures contracts primarily for the purpose
of terminating existing positions. In general, options on stock indices will be
employed in lieu of options on stock index futures contracts only where they
present an opportunity to hedge at lower cost. With respect to options on equity
securities, a Fund may, under certain circumstances, purchase a combination of
call options on such securities and U.S. Treasury bills. The Adviser believes
that such a combination may more closely parallel movements in the value of the
security underlying the call option than would the option itself.
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Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
Options and Futures Strategies. The Adviser may seek to increase the
current return of certain Funds by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and loss incurred as
a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of trade
options as set forth in CFTC Rule 32.4, a Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
Writing Covered Options on Securities. Certain Funds may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund give the holder the right
to buy the underlying securities from a Fund at a stated exercise price; put
options give the holder the right to sell the underlying security to the Fund at
a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
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A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Fund.
Purchasing Put and Call Options on Securities. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Fund
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
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Purchase and Sale of Interest Rate Futures. A Fund may purchase and
sell interest rate futures contracts on foreign government securities including,
but not limited to, debt securities of the governments and central banks of
France, Germany, Denmark and Japan for the purpose of hedging fixed income and
interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Fund's short position in the futures contracts will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of a
Fund's investments that are being hedged. While a Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
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The Fund will write (sell) only covered put and call options on
currency futures. This means that a Fund will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. A Fund will, so long as it is
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by a Fund in cash, Treasury
bills, or other high grade short-term obligations in a segregated account with
its custodian. If at the close of business on any day the market value of the
call purchased by a Fund falls below 100% of the market value of the call
written by the Fund, a Fund will so segregate an amount of cash, Treasury bills
or other high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of any limitation on illiquid
securities imposed by the SEC staff.
Risk Factors Associated with Futures and Options Transactions
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
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Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of a Fund diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
Risk of Imperfect Correlation. A Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain loss on its
hedging transactions which would not be offset by gain on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in
the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by a Fund, which could require
the Fund to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures or option positions also could have an adverse
impact on a Fund's ability effectively to hedge its securities, or the relevant
portion thereof.
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The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and premiums
paid for options on futures contracts would exceed 5% of the market value of the
Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Funds' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Funds may also further
limit their ability to engage in such transactions in response to the policies
and concerns of various Federal and state regulatory agencies. Such policies may
be changed by vote of the Board of Directors/Trustees.
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Additional Information on Futures and Options
---------------------------------------------
As stated in the Funds' Prospectuses, each non-money market Fund, may
enter into futures contracts and options for hedging purposes. Such transactions
are described in this Schedule. During the current fiscal year, each of these
Funds intends to limit its transactions in futures contracts and options so that
not more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
loss on the Fund's open contracts and excluding the amount that a futures option
is "in-the-money" at the time of purchase. (An option to buy a futures contract
is "in-the-money" if the value of the contract that is subject to the option
exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
-----------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
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A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; GNMA modified pass-through mortgage-backed securities; three-month United
States Treasury Bills; and ninety-day commercial paper. The Funds may trade in
any futures contract for which there exists a public market, including, without
limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
Purchase.
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The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
---------------------------------
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
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-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
III. Margin Payments
-------------------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent
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payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable, the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the Adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
----------------------------------------------------
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Adviser. It also is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance, and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the future and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
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<PAGE>
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset loss on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting loss
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
--------------------------------------
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs).
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Although permitted by their fundamental investment policies, the Funds do not
currently intend to write future options, and will not do so in the future
absent any necessary regulatory approvals.
Accounting Treatment.
--------------------
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Guaranteed Investment Contracts
Guaranteed investment contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance companies. Pursuant to such contracts, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, at which point the GIC may
be considered to be an illiquid investment.
The Prime Fund may acquire GlCs so that it, together with other
instruments in its portfolio which are not readily marketable, will not exceed
applicable limitations on such Fund's investments in illiquid securities. The
Prime Fund will restrict its investments in GlCs to those having a term of 397
days or less. In determining average weighted portfolio maturity, a GIC will be
deemed to have a maturity equal to the period of time remaining under the next
readjustment of the guaranteed interest rate.
Insured municipal securities
Certain of the municipal securities held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the municipal
securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
Interest Rate Transactions
Among the strategic transactions into which certain Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g. an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
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A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
Lower Rated Debt Securities
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
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their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
municipal securities
Generally. The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable- or floating- rate
instruments issued by industrial development authorities and other governmental
entities. While there may not be an active secondary market with respect to a
particular instrument purchased by a Fund, a Fund may demand payment of the
principal and accrued interest on the instrument or may resell it to a third
party as specified in the instruments. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of the instrument
if the issuer defaulted on its payment obligation or during periods the Fund is
not entitled to exercise its demand rights, and the Fund could, for these or
other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets
in lease obligations that contain "non-appropriation" clauses where (1) the
nature of the leased equipment or property is such that its ownership or use is
essential to a governmental function of the municipality, (2) the lease payments
will commence amortization of principal at an early date resulting in an average
life of seven years or less for the lease obligation, (3) appropriate covenants
will be obtained from the municipal obligor prohibiting the substitution or
purchase of similar equipment if lease payments are not appropriated, (4) the
lease obligor has maintained good market acceptability in the past, (5) the
investment is of a size that will be attractive to institutional investors, and
(6) the underlying leased equipment has elements of probability and/or use that
enhance its marketability in the event foreclosure on the underlying equipment
were ever required. The Funds have not imposed any percentage limitations with
respect to their investment in lease obligations not subject to the
"non-appropriation" risk. To the extent municipal leases are illiquid, they will
be subject to each Fund's limitation on investments in illiquid securities.
Recovery of an investment in any such loan that is illiquid and payable on
demand may depend on the ability of the municipal borrower to meet an obligation
for full repayment of principal and payment of accrued interest within the
demand period, normally seven days or less (unless a Fund determines that a
particular loan issue, unlike most such loans, has a readily available market).
As it deems appropriate, the Adviser will establish procedures to monitor the
credit standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Fund will consider: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of non-appropriation"); and (5)
the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Fund's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein, which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income taxes.
In addition, certain of the Funds may acquire "stand-by commitments"
from banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified municipal securities at a specified price. The Funds
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
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Although the Funds do not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in municipal securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
There are, of course, variations in the quality of municipal
securities, both within a particular classification and between classifications,
and the yields on municipal securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of NRSROs represent their opinions as to the quality of
municipal securities. It should be emphasized, however, that these ratings are
general and are not absolute standards of quality, and municipal securities with
the same maturity, interest rate, and rating may have different yields while
municipal securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of municipal securities may cease to be rated, or its rating may be reduced
below the minimum rating required for purchase by that Fund. The Adviser will
consider such an event in determining whether a Fund should continue to hold the
obligation.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular Federal income tax or state income
tax are rendered by counsel to the issuer or bond counsel at the time of
issuance. Neither the Funds nor the Adviser will review the proceedings relating
to the issuance of municipal securities or the bases for opinions relating to
the validity of such issuance.
The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its municipal securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its municipal securities may be materially adversely affected by
litigation or other conditions.
Certain types of municipal securities (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities, and certain
local facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal securities. Moreover, with respect to municipal securities
issued by states, the Funds cannot predict which legislation, if any, may be
proposed in the state legislatures or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially and adversely
affect the availability of municipal securities for investment by one of these
Funds and the liquidity and value of such portfolios. In such an event, a Fund
impacted would re-evaluate its investment objective and policies and consider
possible changes in its structure or possible dissolution.
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Options on Currencies
Certain Funds may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
Other Investment Companies
In seeking to attain their investment objectives, certain Funds may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
so that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Company as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that a Fund bears in connection with its own operations. The
Adviser has agreed to remit to the respective investing Fund fees payable to it
under its respective Investment Advisory Agreement with an affiliated money
market Fund to the extent such fees are based upon the investing Fund's assets
invested in shares of the affiliated money market fund.
Participation Interests and Company Receipts
Certain Funds may purchase from domestic financial institutions and
trusts created by such institutions participation interests and trust receipts
in high quality debt securities. A participation interest or receipt gives the
Fund an undivided interest in the security in the proportion that the Fund's
participation interest or receipt bears to the total principal amount of the
security. As to certain instruments for which the Fund will be able to demand
payment, the Fund intends to exercise its right to do so only upon a default
under the terms of the security, as needed to provide liquidity or to maintain
or improve the quality of its investment portfolio. It is possible that a
participation interest or trust receipt may be deemed to be an extension of
credit by the Fund to the issuing financial institution rather than to the
obligor of the underlying security and may not be directly entitled to the
protection of any collateral security provided by the obligor. In such event,
the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the SEC). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by the Board of Directors. For certain
participation interests or trust receipts the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest or trust receipt in the securities involved, plus accrued
interest.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gain from any sales of properties. A mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both equity and mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended.
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Repurchase Agreements
The repurchase price under any repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by a Company's custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by such Company under the 1940 Act.
Reverse Repurchase Agreements
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Securities Lending
To increase return on portfolio securities, certain Funds may lend
their portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 33% of the
value of its total assets which may include cash collateral received for
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. Pursuant to the securities loan agreement a Fund is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Fund of securities identical to the
transferred securities upon termination of the loan.
Short Sales
Certain Funds may from time to time enter into short sales
transactions. A Fund will not make short sales of securities nor maintain a
short position unless at all times when a short position is open, such Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by a Fund for the purpose of deferring recognition of gain or loss for
federal income tax purposes.
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Special Situations
Certain Funds may invest in "special situations." A special situation
arises when, in the opinion of the Adviser, the securities of a particular
company will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
Stand-By Commitments
Certain Funds may acquire "stand-by commitments" with respect to
municipal securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Fund, at a Fund's option, specified municipal
securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying municipal securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
The amount payable to a Government Corporate Bond Fund upon its
exercise of a stand-by commitment will normally be (i) the Fund's acquisition
cost of the municipal securities (excluding any accrued interest which a
Government Corporate Bond Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period a Government Corporate Bond Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. Under normal market conditions, in determining net asset value a
Government Corporate Bond Fund values the underlying municipal securities on an
amortized cost basis. Accordingly, the amount payable by a dealer upon exercise
of a stand-by commitment will normally be substantially the same as the
portfolio value of the underlying municipal securities.
A Fund's right to exercise stand-by commitments will be unconditional
and unqualified. A stand-by commitment will not be transferable by a Fund,
although the Fund could sell the underlying municipal securities to a third
party at any time. Until a Fund exercises its stand-by commitment, it owns the
securities in its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
that Fund.
Each Fund intends to enter into stand-by commitments only with banks
and broker/dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Fund will be valued at zero
in determining net asset value. A Fund's reliance upon the credit of these
dealers, banks, and broker/dealers will be secured by the value of the
underlying municipal securities that are subject to the commitment. Thus, the
risk of loss to the Fund in connection with a "stand-by commitment" will not be
qualitatively different from the risk of loss faced by a person that is holding
securities pending settlement after having agreed to sell the securities in the
ordinary course of business.
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Stripped Securities
Certain Funds may purchase stripped securities issued or guaranteed by
the U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
U.S. and Foreign Bank Obligations
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 20% of total assets at the time of investment.
40
<PAGE>
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
U.S. Government Obligations
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
U.S. Government obligations include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
Use of Segregated and Other Special Accounts
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations. Such
a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Fund will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a Fund must deposit initial margin
and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
41
<PAGE>
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
Variable- and Floating-Rate Instruments
Certain Funds may purchase variable-rate and floating rate obligations.
If such instrument is not rated, the Adviser will consider the earning power,
cash flows, and other liquidity ratios of the issuers and guarantors of such
obligations and, if the obligation is subject to a demand feature, will monitor
their financial status to meet payment on demand. In determining average
weighted portfolio maturity, a variable-rate demand instrument issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof will
be deemed to have a maturity equal to the period remaining until the obligations
next interest rate adjustment. Other variable-rate obligations will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the time a Fund can recover payment of principal as specified
in the instrument.
Variable-rate demand notes held by a Money Market Fund may have maturities of
more than 397 days, provided (i) the Fund is entitled to payment principal on
not more than 30 days' notice, or at specified intervals not exceeding 397 days
(upon not more than 30 days' notice), and (ii) the rate of interest on such note
is adjusted automatically at periodic intervals which may extend up to 397 days.
The variable- and-floating rate demand instruments that the Funds may
purchase include participations in municipal securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Funds. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.
Warrants
Certain Funds are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
When-Issued Purchases and Forward Commitments
A Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
42
<PAGE>
A Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of a
Fund starting on the date the Fund agrees to purchase the securities. The Fund
does not earn dividends on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
Portfolio Turnover
Generally, the Equity Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. For the Funds' portfolio turnover rates, see the
"Financial Highlights" in the Prospectus.
Investment Risks
In addition to the risks identified in certain of the securities
descriptions above, there also are general investment risks associated with an
investment in any of the Funds.
In addition to the investment risks and considerations identified in
certain of the securities descriptions above, there are additional investment
risks and considerations associated with an investment in certain of the Funds.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risks. The value of the stocks that the Fund holds, like
the broader stock market, may decline over short or even extended periods. The
U.S. stock market tends to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. As of the date of this SAI, the
stock market, as measured by the S&P 500 Index and other commonly used indexes,
was trading at or close to record levels. There can be no guarantee that these
levels will continue.
Marsico Focused Equities Fund is a non-diversified fund, which means
that it typically invest in fewer issuers than diversified funds. Therefore,
appreciation or depreciation of an investment in a single issuer could have a
greater impact on these Funds' net asset value. Marsico Focused Equities Fund
reserves the right to become a diversified fund by limiting the investments in
which more than 5% of its total assets are invested.
The value of a Fund's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due. In addition,
obligations with the lowest investment grade rating (e.g., "BBB" S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
43
<PAGE>
Certain of the Funds' investments constitute derivative securities,
which are securities whose value is derived, at least in part, from an
underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with such Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Fund Securities."
Certain of the Funds may invest in securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
Master Feeder Structure. The Feeder Funds are open-end mutual funds
that seek to achieve their investment objectives by investing all of its
investable assets in corresponding Master Portfolios which have the same
investment objectives. The Feeder Funds may withdraw their investment in the
Master Portfolios at any time if the Board of Directors of appropriate Company
determines that it is in the best interest of such Feeder Fund to do so. Upon
such withdrawal, the Board of Directors would consider what action might be
taken, including the investment of all of the assets of the Fund in another
pooled investment entity having the same investment objective as the Feeder Fund
or the hiring of an investment adviser to manage the Feeder Fund's assets in
accordance with its investment policies.
The Master Portfolios are separate series of Nations Master Investment
Trust, which is organized as a business trust under the laws of Delaware. The
Feeder Fund and other entities that may investment in the Master Portfolios from
time to time (e.g., other investment companies and commingled trust funds) will
each be liable for all obligations of the Master Portfolios. However, the risk
of the Feeder Fund's incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and a
Portfolio itself is unable to meet its obligations. Accordingly, the Boards of
Directors/Trustees of Nations Fund, Inc., Nations Fund Trust, Nations Reserves
and Nations Funds Trust believe that neither a Feeder Fund nor its shareholders
will be adversely affected by reason of a Feeder Fund's investing in a Master
Portfolio. As with any mutual fund, other investors in the Master Portfolios
could control the results of voting at the Master Portfolio level in certain
instances (e.g., a change in fundamental policies by the Master Portfolio which
was not approved by the Fund's shareholders). This could result in a Feeder
Fund's withdrawal of its investment in the Master Portfolio. Further, the
withdrawal of other entities that may from time to time invest in the Master
Portfolios could have an adverse effect on the performance of such Master
Portfolios and the corresponding Feeder Fund, such as decreased economies of
scale, and increased per share operating expenses. In addition, the total
withdrawal by another investment company as an investor in a Master Portfolio
will cause the such Master Portfolio to terminate automatically in 120 days
unless a Feeder Fund and any other investors in the Master Portfolio unanimously
agree to continue the business of the Master Portfolio. If unanimous agreement
is not reached to continue the Master Portfolio, the Board of Directors/Trustees
of a Nations Funds company would need to consider alternative arrangements for
the Feeder Fund, such as those described above. When the Fund is required to
vote as an interestholder of the Master Portfolio, current regulations provide
that in those circumstances the Feeder Fund may either seek instructions from
its security holders with regard to voting such proxies and vote such proxies in
accordance with such instructions or the Feeder Fund may vote its shares in the
Master Portfolio in the same proportion of all other security holders in the
Master Portfolio.
There may also be other investment companies through which you can
invest in the Master Portfolio which may have higher or lower fees and expense
than those of its corresponding Fund and which may therefore have different
performance results than the Feeder Fund.
44
<PAGE>
MANAGEMENT OF THE COMPANY
-------------------------
The business and affairs of the Company are managed under the direction
of its Board of Directors. This SAI contains the names of and general background
information concerning each Director.
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. The address of each,
unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Those Directors who are "interested persons" of the Company (as defined in the
1940 Act) are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Company Directorships
---------------------- ----------- -------------
<S> <C> <C>
Edmund L. Benson, III, 63 Director Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance),
1510 Willow Lawn Drive Insurance Managers, Inc.
Suite 216 (insurance); Trustee, Nations
Richmond, VA 23230 Reserves, Nations Master Investment
Trust, Nations Annuity Trust and
Nations Fund Trust; Director,
Nations Fund, Inc., and Nations
LifeGoal Funds, Inc.; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
William P. Carmichael, 56 Director Trustee - 231 Funds (investment
Succession Fund company) from 1993 to 1995, Time
The Wrigley Building Horizon Fund (investment company)
400 North Michigan Avenue from 1995 to 1999, Pacific
Suite 1016 Innovations Trust (investment
Chicago, IL 60611 company) from 1997 to 1999, Nations
Annuity Trust (investment company)
since December 1999, Nations Master
Investment Trust (investment company)
since December 1999, and Nations
Funds Trust (investment company)
since December 1999; Director- The
Hain Food Group, Inc. (specialty food
products distributor) until December
1998, Cobra Electronics Corporation
(electronic equipment manufacturer),
Opta Food Ingredients, Inc. (food
ingredients manufacturer), Golden
Rule Insurance Company, Nations
LifeGoal Funds, Inc. (investment
company) since December 1999.
James Ermer, 57 Director Retired Executive Vice President,
11511 Compass Point Drive Corporate Development and Planning -
Ft. Meyers, FL 33908 Land America (title insurance);
Senior Vice President, Finance - CSX
Corporation (transportation and
natural resources); Director -
National Mine Service (mining
supplies), Lawyers Title Corporation
(title insurance); Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund, Inc. and Nations
LifeGoal Funds, Inc.; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
William H. Grigg, 67 Director Chairman Emeritus since July 1997,
Duke Power Co. Chairman and Chief Executive Officer
16092A Reap Road from April 1994 to July 1997 - Duke
Albermarle, NC 28001 Power Co.; Director - The Shaw
Group, Inc.; Director and Vice
Chairman, Aegis Insurance Services,
Ltd. (a mutual insurance company in
Bermuda); Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Hatteras Income Securities, Inc.,
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Company Directorships
---------------------- ----------- -------------
<S> <C> <C>
Nations Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc. and
Nations LifeGoal Funds, Inc.;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Thomas F. Keller, 68 Director R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and
P.O. Box 90120 Former Dean - Fuqua School of
Duke University Business, Duke University; Director
Durham, NC 27708 - LADD Furniture, Inc. (furniture),
Wendy's International, Inc.
(restaurant operating and
franchising), American Business
Products, Inc. (printing services),
Dimon, Inc. (tobacco), Biogen, Inc.
(pharmaceutical biotechnology);
Trustee, The Mentor Funds, Mentor
Institutional Trust, Cash Reserve
Trust, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust;
Director, Hatteras Income
Securities, Inc., Nations Government
Income Term Trust 2003, Inc.,
Nations Government Income Term Trust
2004, Inc., Nations Balanced Target
Maturity Fund, Inc. and Nations
LifeGoal Funds, Inc.; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Carl E. Mundy, Jr., 64 Director President and CEO - USO from May
USO World Headquarters 1996 to present; Commandant - United
Washington Navy Yard States Marine Corps from July 1991
Building 198 to July 1995; Director -
901 M Street, S.E. Shering-Plough (pharmaceuticals and
Washington, D.C. 20374-5096 health care products); General
Dynamics Corporation (defense
systems); Trustee, Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
Trust; Director, Nations Fund, Inc.
and Nations LifeGoal Funds, Inc.;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Dr. Cornelius J. Pings, 71* Director President - Association of American
480 S. Orange Grove Blvd. Universities from February 1993 to
Pasadena, CA 91105 June 1998; Director - Farmers Group,
Inc. (insurance company), Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Master
Investment Trust, Series I from 1995
to 1999, Master Investment Trust,
Series II from 1995 to 1997, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.;
Director/Trustee and Chairman -
Pacific Horizon Funds, Inc. and
Master Investment Trust, Series I,
from inception to May 1999;
Director - Time Horizon Funds and
Pacific Innovations Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
James B. Sommers*, 61 Director President - NationsBank Trust from
237 Cherokee Road January 1992 to September 1996;
Charlotte, NC 28207 Executive Vice President -
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Company Directorships
---------------------- ----------- -------------
<S> <C> <C>
NationsBank Corporation from January
1992 to May 1997; Chairman - Central
Piedmont Community College
Foundation; Board of Commissioners,
Charlotte/ Mecklenberg Hospital
Authority; Director - Nations Fund,
Inc. and Nations LifeGoal Funds,
Inc.; Trustee, Central Piedmont
Community College; Mint Museum of
Art, Nations Reserves, Nations Fund
Trust, Nations Annuity Trust and
Nations Master Investment Trust;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
A. Max Walker*, 78 President, Director and Independent Financial Consultant;
4580 Windsor Gate Court Chairman of the Board Director and Chairman of the Board -
Atlanta, GA 30342 Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc.; President, Director and
Chairman of the Board - Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; President, Trustee and
Chairman of the Board - Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Charles B. Walker, 61 Director Director-Ethyl Corporation (chemical
Albermarle Corporation manufacturing); Vice Chairman and
Vice Chairman and CFO Chief Financial Officer - Albemarle
330 South Fourth Street Corporation (chemical
Richmond, VA 23219 manufacturing); Director, Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Thomas S. Word, Jr.*, 61 Director Partner - McGuire, Woods, Battle &
McGuire, Woods, Battle & Boothe LLP Boothe LLP (law firm); Director -
One James Center Vaughan-Bassett Furniture Companies,
8th Floor Inc. (furniture), Nations Fund, Inc.
Richmond, VA 23219 and Nations LifeGoal Funds, Inc.;
Trustee, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Richard H. Blank, Jr., 42 Secretary and Treasurer Senior Vice President since 1998,
Stephens Inc. Vice President from 1994 to 1998 and
111 Center Street Manager from 1990 to 1994 - Mutual
Little Rock, AR 72201 Fund Services, Stephens Inc.;
Secretary since September 1993 and
Treasurer since November 1998 -
Nations Fund, Inc., Nations LifeGoal
Funds, Inc., Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
Trust.; Secretary and Treasurer,
Nations Fund Portfolios, Inc.
through August, 1999.
Michael W. Nolte, 39 Assistant Secretary Assistant Secretary - Nations Fund
Stephens Inc. Trust, Nations Fund, Inc., Nations
Reserves, Nations LifeGoal Funds,
Inc., Nations Annuity Trust and
Nations Master Investment Trust;
Assistant Secretary, Nations Fund
Portfolios, Inc. through August,
1999.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Company Directorships
---------------------- ----------- -------------
<S> <C> <C>
Carolyn Wyse, 37 Assistant Secretary and Assistant Secretary and Assistant
Stephens Inc. Assistant Treasurer Treasurer since August 1999- Nations
Fund Trust, Nations Fund, Inc.,
Nations Reserves, Nations LifeGoal
Funds, Inc., Nations Annuity Trust,
Nations Master Investment Trust and
Nations Funds Trust.
</TABLE>
Mr. Blank serves as Secretary and Treasurer to other investment
companies for which Stephens Inc. serves as administrator.
Each Director of the Company is also a Director of Nations Fund, Inc.
and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund Trust, Nations
Annuity Trust, Nations Master Investment Trust, Nations Reserves and Nations
Funds Trust, each an open-end registered investment company that is part of the
Nations Funds Family, except William P. Carmichael, who is only a board member
of Nations Funds Trust, Nations Annuity Trust, Nations Master Investment Trust
and the Company. Richard H. Blank, Jr., Michael W. Nolte and Carolyn Wyse are
also officers of Nations Fund, Inc., Nations Fund Trust, Nations LifeGoal Funds,
Inc., Nations Annuity Trust, Nations Master Investment Trust, Nations Reserves
and Nations Funds Trust.
As of the date of this SAI, the directors and officers of the Company
as a group owned less than 1% of the outstanding shares of each of the LifeGoal
Portfolios.
Each Company, each Adviser, and Stephens have adopted a code of ethics
which, contain policies on personal securities transactions by "access persons,"
including portfolio managers and investment analysts. These policies
substantially comply in all material respects with the amendments to Rule 17j-1
under the 1940 Act as set forth in the August 20, 1999 Release. Each code of
ethics, among other things, prohibits each access person of the Company from
purchasing or selling securities when such person knows or should have known
that, at the time of the transaction, the security (i) was being considered for
purchase or sale by a Fund, or (ii) was being purchased or sold by a Fund. For
purposes of the code of ethics, an access person means (i) a director or officer
of a Company, (ii) any employee of a Company (or any company in a control
relationship with a Company) who, in the course of his/her regular duties,
obtains information about, or makes recommendations with respect to, the
purchase or sale of securities by a Company, and (iii) any natural person in a
control relationship with a Company who obtains information concerning
recommendations made to a Company regarding the purchase or sale of securities.
Portfolio managers and other persons who assist in the investment process are
subject to additional restrictions, including a requirement that they disgorge
to a Company any profits realized on short-term trading (i.e., the purchase/sale
or sale/purchase of securities within any 60-day period). The above restrictions
do not apply to purchases or sales of certain types of securities, including
mutual fund shares, money market instruments and certain U.S. Government
securities. To facilitate enforcement, the code of ethics generally requires
that a Company's access persons, other than its "disinterested" directors or
trustees, submit reports to a Company's designated compliance person regarding
transactions involving securities which are eligible for purchase by a Fund. The
codes of ethics for the Company, Adviser, and Stephens are on public file with,
and are available from, the SEC.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each Director/Trustee may be
entitled to certain benefits upon retirement from the Board of
Directors/Trustees. Pursuant to the Retirement Plan, the normal retirement date
is the date on which the eligible director/trustee has attained age 65 and has
completed at least five years of continuous service with one or more of the
open-end investment companies advised by the Adviser. If a director/trustee
retires before reaching age 65, no benefits are payable. Each eligible
director/trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate
48
<PAGE>
director's/trustee's fees payable by the Funds during the calendar year in which
the director's/trustee's retirement occurs multiplied by the number of years of
service (not in excess of ten years of service) completed with respect to any of
the Funds. Such benefit is payable to each eligible director/trustee in
quarterly installments for a period of no more than five years. If an eligible
director/trustee's dies after attaining age 65, the director's/trustees
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the
director/trustee if he had not died. The Retirement Plan is unfunded. The
benefits owed to each director/trustee are unsecured and subject to the general
creditors of the Funds.
Nations Funds Deferred Compensation Plan
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors/Trustees (the "Deferred Compensation Plan"), each
director/trustee may elect, on an annual basis, to defer all or any portion of
the annual board fees (including the annual retainer and all attendance fees)
payable to the director/trustee for that calendar year. An application was
submitted to and approved by the SEC to permit deferring directors/trustees to
elect to tie the rate of return on fees deferred pursuant to the Deferred
Compensation Plan to one or more of certain investment portfolios of certain
Funds. Distributions from the deferring directors'/trustees deferral accounts
will be paid in cash, in generally equal quarterly installments over a period of
five years beginning on the date the deferring director's/trustees' retirement
benefits commence under the Retirement Plan. The Board of Directors/Trustees, in
its sole discretion, may accelerate or extend such payments after a
director's/trustee's termination of service. If a deferring director/trustee
dies prior to the commencement of the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a lump sum as soon as practicable after the
director's/trustee's death. If a deferring director/trustee dies after the
commencement of such distribution, but prior to the complete distribution of his
deferral account, the balance of the amounts credited to his deferral account
will be distributed to his designated beneficiary over the remaining period
during which such amounts were distributable to the director/trustee. Amounts
payable under the Deferred Compensation Plan are not funded or secured in any
way and deferring directors/trustees have the status of unsecured creditors of
the Funds from which they are deferring compensation.
49
<PAGE>
Director Compensation
---------------------
The Directors/Trustees of the all the open-end fund companies in the
Nations Funds family are compensated for their services to the such companies on
a flat rate basis, and not on a per registered investment company or per fund
basis as outlined in the following chart.
Board Member Compensation Arrangement
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------- -------------------------------------------------------------
Board Member Annual Retainer: $65,000
Board Chairman: Additional 20% of the base annual
retainer. Payable in quarterly installments. Payable pro
rata for partial calendar year of service. Allocated
across multiple registrants.
Meeting Fees: $5,000 per meeting for in-person meetings
(up to six meetings per calendar year) and $1,000 for
telephone meetings. Allocated across multiple registrants
convened at meetings.
------------------------------------------------- -------------------------------------------------------------
Audit Committee Members Chairman: Additional 10% of the base annual retainer as
Board Member.
Meeting Fees: $1,000 per meeting if not held within one
calendar day before or after regularly scheduled Board
meetings. Allocated across multiple registrants convened
at meetings.
------------------------------------------------- -------------------------------------------------------------
Nominating Committee Members Meeting Fees: $1,000 per meeting if not held within one
calendar day before or after regularly scheduled Board
meetings. Allocated across multiple registrants convened
at meetings.
------------------------------------------------- -------------------------------------------------------------
</TABLE>
The following Compensation Table provides the compensation paid by the
companies to the Directors/Trustees for the year ended March 31, 2000. From
April 1, 1999 to June 30, 1999 each Director/Trustee received (i) an annual
retainer of $1,000 ($3,000 for the Chairman of the Board) plus $500 for each
Series of each Company, plus (ii) a fee of $1,000 for attendance at each
"in-person" meeting of each respective Board (or Committee thereof) and $500 for
attendance at each other meeting of each respective Board (or Committee
thereof). Beginning July 1, 1999 the Trustees were compensated according to the
Compensation Arrangement as outlined above.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement
Compensation Benefits Accrued Estimated Annual Total Compensation
Name of Person from as Part of Fund Benefits Upon from Registrant
Position(1) Registrant(2) Expenses Retirement Plan & Fund Complex(3)(4)
------------ -------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III $46,000 $8,889 $35,000 $77,377
Trustee/Director
James Ermer 44,000 8,889 35,000 65,375
Trustee/Director
William H. Grigg 47,000 8,889 35,000 90,375
Trustee/Director
Thomas F. Keller 50,000 8,889 35,000 94,875
Trustee/Director
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement
Compensation Benefits Accrued Estimated Annual Total Compensation
Name of Person from as Part of Fund Benefits Upon from Registrant
Position(1) Registrant(2) Expenses Retirement Plan & Fund Complex(3)(4)
------------ -------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
A. Max Walker 56,000 8,889 35,000 110,875
Chairman of the Board
Charles B. Walker 47,000 8,889 35,000 71,375
Trustee/Director
Thomas S. Word 50,000 8,889 35,000 77,375
Trustee/Director
James P. Sommers 47,500 8,889 35,000 73,375
Trustee/Director
Carl E. Mundy, Jr. 48,500 8,889 35,000 74,377
Trustee/Director
Dr. Cornelius Pings 0 0 0 0
Trustee/Director
</TABLE>
(1) All directors/trustees receive reimbursements for expenses related
to their attendance at meetings of the Board of Directors/Trustees. Officers of
the companies receive no direct remuneration in such capacity from the
companies. As of the date of this SAI, the directors and officers of each
company as a group owned less than 1% of the outstanding shares of each of the
Funds.
(2) For the twelve-month period ending March 31, 1999, each
Director/Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the companies, plus (ii) a fee
of $1,000 for attendance at each "in-person" meeting of the Board of Trustees
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from ten
investment companies that are deemed to be part of the Nations Funds "fund
complex," as that term is defined under Rule 14a-101 of the Securities Exchange
Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker, Sommers, Mundy and
Word receive compensation from six investment companies deemed to be part of the
Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors/Trustees: Edmund L.
Benson, III $35,188; William H. Grigg $66,375; Thomas F. Keller $70,375; and
Thomas S. Word $70,375.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY, TRANSFER AGENCY, OTHER SERVICE
----------------------------------------------------------------------------
PROVIDERS, SHAREHOLDER SERVICING AND
------------------------------------
DISTRIBUTION ARRANGEMENTS
-------------------------
Investment Adviser and Sub-Adviser of the LifeGoal Portfolios
BAAI serves as investment adviser to the LifeGoal Portfolios pursuant
to an Investment Advisory Agreement dated . BAAI is a wholly owned subsidiary of
Bank of America, which in turn is a wholly owned banking subsidiary of Bank of
America Corporation, a bank holding company organized as a Delaware corporation.
BAAI has its principal offices at One Bank of America Plaza, Charlotte, North
Carolina 28255.
BAAI also serves as investment adviser to the funds of Nations Fund,
Inc., Nations Fund Trust, Nations Annuity Trust, Nations Master Investment
Trust, Nations Reserves and Nations Funds Trust, each a registered investment
company that is part of the Nations Funds Family. In addition, BAAI serves as
the investment adviser to Hatteras Income Securities, Inc., Nations Government
Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.
and Nations Balanced Target Maturity Fund, Inc., each a closed-end diversified
management investment company traded on the New York Stock Exchange.
51
<PAGE>
The Investment Advisory Agreement was originally approved by the
Company's Board of Directors at the October 11, 1996 Meeting of the Board of
Directors and by the initial shareholder. It provides that BAAI may delegate its
duties to a sub-adviser. The Investment Advisory Agreement provides that in the
absence of willful misfeasance, bad faith, negligence or reckless disregard of
obligations or duties thereunder on the part of BAAI, or any of its officers,
directors, employees or agents, BAAI shall not be subject to liability to the
Company or to any shareholder of the Company for any act or omission in the
course of, or connected with, rendering services thereunder or for any loss that
may be sustained in the purchase, holding or sale of any security. BAAI will
receive fees for providing advisory services at the annual rate of .25% of the
average daily value of each LifeGoal Portfolio's net assets during the preceding
month. BAAI also has agreed to absorb all other expenses of the LifeGoal
Portfolios (except taxes, brokerage fees and commissions, extraordinary
expenses, and any applicable Rule 12b-1 fees, shareholder servicing fees and/or
shareholder administration fees). BAAI also is compensated for providing
advisory services to the underlying Nations Funds in which the LifeGoal
Portfolios invest. The Investment Advisory Agreement shall become effective with
respect to a LifeGoal Portfolio if and when approved by the Directors of the
Company, and if so approved, shall thereafter continue from year to year,
provided that such continuation of the Agreement is specifically approved at
least annually by (a) (i) the Company's Board of Directors or (ii) the vote of
"a majority of the outstanding voting securities" of a LifeGoal Portfolio (as
defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a
majority of the Company's Directors who are not parties to such Agreement or
"interested persons" (as defined in the 1940 Act) of a party to such Agreement
(other than as Directors of the Company), by votes cast in person at a meeting
specifically called for such purpose. The Investment Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable with
respect to a LifeGoal Portfolio at any time without penalty by the Company (by
vote of the Board of Directors or by vote of a majority of the outstanding
voting securities of a LifeGoal Portfolio) or by BAAI on 60 days' written
notice.
The dollar amount of investment advisory fees paid by each LifeGoal
Portfolio of the Company to BAAI and the dollar amount of advisory fees
voluntarily reduced by BAAI for the Company's fiscal period ended March 31,
2000, were as follows:
<TABLE>
<CAPTION>
Advisory
Net Fees Expenses
Advisory Voluntarily Reimbursed
Fees Waived by Adviser
---- ------ ----------
<S> <C> <C> <C>
LifeGoal Growth Portfolio
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
</TABLE>
The dollar amount of investment advisory fees paid by each LifeGoal Portfolio of
the Company to BAAI and the dollar amount of advisory fees voluntarily reduced
by BAAI for the Company's fiscal period ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Advisory
Net Fees Expenses
Advisory Voluntarily Reimbursed
Fees Waived by Adviser
---- ------ ----------
<S> <C> <C> <C>
LifeGoal Growth Portfolio $ 33,010 $ 0 $ 0
LifeGoal Balanced Growth Portfolio 49,521 0 0
LifeGoal Income and Growth Portfolio 17,390 0 0
</TABLE>
52
<PAGE>
The dollar amount of investment advisory fees paid by each LifeGoal
Portfolio of the Company to BAAI and the dollar amount of advisory fees
voluntarily reduced by BAAI for the Company's fiscal period ended March 31, 1998
were as follows:
<TABLE>
<CAPTION>
Advisory
Net Fees Expenses
Advisory Voluntarily Reimbursed
Fees Waived by Adviser
---- ------ ----------
<S> <C> <C> <C>
LifeGoal Growth Portfolio $ 10,146 $ 0 $ 0
LifeGoal Balanced Growth Portfolio 8,202 0 0
LifeGoal Income and Growth Portfolio 2,167 0 0
</TABLE>
BACAP, with principal offices at One Bank of America Plaza, Charlotte,
North Carolina serves as investment sub-adviser to the LifeGoal Portfolios.
BACAP is a wholly owned subsidiary of Bank of America. BACAP provides investment
management services to individuals, corporations and institutions.
The Sub-Advisory Agreement was approved by the Company's Board of
Directors on October 11, 1996 and by the initial shareholder. It provides that
BACAP, subject to the supervision of BAAI and the Board of Directors of the
Company, will be primarily responsible for managing the assets of each LifeGoal
Portfolio. BACAP will receive fees for providing such services at the annual
rate of .05% of the average daily value of each LifeGoal Portfolio's net assets
during the preceding month. BACAP is also compensated for providing sub-advisory
services to most of the underlying Nations Funds in which the LifeGoal Portfolio
invest. The Sub-Advisory Agreement will continue in effect for an initial term
of two years from its effective date and continues in effect from year to year
thereafter only if such continuance is specifically approved at least annually
by the Company's Board of Directors and the affirmative vote of a majority of
the directors who are not parties to the Sub-Advisory Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The respective LifeGoal Portfolios, BAAI or BACAP may terminate the
Sub-Advisory Agreement, on 60 days' written notice without penalty. The
Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
Since 1874, Bank of America and its predecessors have been managing
money for foundations, universities, corporations, institutions and individuals.
Today, Bank of America affiliates collectively manage in excess of $100 billion,
including the more than $90 billion in mutual fund assets. It is a company
dedicated to a goal of providing responsible investment management and superior
service. Bank of America is recognized for its sound investment approaches,
which place it among the nation's foremost financial institutions. Bank of
America and its affiliates organization makes available a wide range of
financial services to its over 6 million customers through over 1700 banking and
investment centers.
Investment Adviser and Sub-Adviser of the Underlying Nations Funds
BAAI serves as investment adviser to all of the underlying Nations
Funds.
Brandes Investment Partners L.P. ("Brandes") serves as investment
sub-adviser to the International Value Master Portfolio. Brandes Investment
Partners, Inc. owns a controlling interest in Brandes Investment Partners, L.P.
and serves as its General Partner. Charles Brandes is the controlling
shareholder of Brandes Investment Partners, Inc. The principal offices of
Brandes are located at 12750 High Bluff Drive, San Diego, CA 92130.
Gartmore Global Partners ("Gartmore"), INVESCO Global Asset Management
(N.A.), Inc. ("INVESCO") and Putnam Investment Management, Inc. ("Putnam") are
the co-investment sub-advisers to the International Equity Master Portfolio.
Gartmore is registered as an investment adviser under the Investment Advisers
Act of 1940, with principal offices at Gartmore House, 8 Fenchurch Place, London
EC3M 4PH England. It currently serves as investment sub-adviser to the Emerging
Markets Fund, International Growth Fund and International Equity Master
Portfolio. Gartmore's former indirect parent was Bank of America Corporation. As
of May 31, 2000, Gartmore's indirect parent became Nationwide. Nationwide is an
Ohio mutual insurance company with its principal executive offices located at
One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is the controlling
company of the Nationwide Insurance Enterprise, an insurance and financial
53
<PAGE>
services organization (the "Enterprise"). In 1997, Nationwide had $5.1 billion
of net written premium. Nationwide is a party to the Nationwide Intercompany
Pooling Agreement (the "Nationwide Pooling Agreement") with 12 other property
and casualty insurance companies within the Enterprise which provides that
Nationwide shares in a specified percentage of the combined underwriting results
and dividends to policyholders incurred by such companies (the "Nationwide
Pool"). The insurance companies comprising the Nationwide Pool were the sixth
largest property and casualty insurance group and were the fourth largest
automobile insurance group in the United States, with approximately $8.4 billion
in total net written premium at December 31, 1997 and approximately a 3.3%
market share. Nationwide was originally chartered in the State of Ohio in 1925
as the Farm Bureau Mutual Automobile Insurance Company and it adopted its
present name in 1955. INVESCO Global Asset Management (N.A.), Inc., with
principal offices located at 1315 Peachtree Street, N.E., Atlanta, Georgia
30309, was founded in 1997 as a division of INVESCO Global a publicly traded
investment management firm located in London, England, and a wholly owned
subsidiary of AMVESCAP PLC, a publicly traded UK financial holding company also
located in London, England that, through its subsidiaries, engages in
international investment management. The "management team" responsible for the
day-to-day investment decisions for INVESCO's managed portion of the assets of
the International Equity Fund are: John D. Rogers, CFA; W. Linsay Davidson;
Michele T. Garren, CFA; Erik B. Granade, CFA; Kent A. Stark; and Ingrid Baker,
CFA. Putnam Investment Management, Inc., with principal offices located at One
Post Office Square, Boston, Massachusetts 02109, is a wholly owned subsidiary of
Putnam Investments, Inc., an investment management firm founded in 1937 which,
except for shares held by employees is owned by Marsh & McLennan Companies, a
publicly traded professional services firm that engages, through its
subsidiaries in the business of insurance brokerage, investment management and
consulting. The "management team" responsible for the day-to-day investment
decisions for Putnam's managed portion of the assets of the International Equity
Fund are: Omid Kamshad, CFA; Mark D. Pollard, Justin M. Scott and Paul C.
Warren.
Marsico Capital Management LLC ("Marsico") serves as investment
sub-adviser to the Marsico Focused Equities Master Portfolio. Marsico Capital is
located at 1200 17th Street, Suite 1300, Denver, CO 80202. Thomas F. Marsico is
currently Chairman and Chief Executive Officer of Marsico Capital. Prior to
forming Marsico Capital in September 1997, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager. Bank of America currently
owns 50% of Marsico Capital. On June 28, 2000, Bank of America announced its
intention to purchase the remaining 50% equity interest in Marsico Capital.
Chicago Equity Partners, LLC ("Chicago Equity") serves as investment
sub-adviser to the Blue Chip Master Portfolio. Chicago Equity Partners
Corporation was established in 1998 as a wholly owned subsidiary of Bank of
America and is the successor to the Bank of America Institutional Equity Group.
On April 30, 2000, Chicago Equity Partners Corporation merged into Chicago
Equity, a limited liability company formed in the state of Delaware. Chicago
Equity is an investment adviser registered under the Investment Advisers Act of
1940, as amended. It serves as the investment sub-adviser for the Blue Chip
Master Portfolio and the equity portion of the Asset Allocation Fund. The
principal source of Chicago Equity's income is professional fees received from
the management of client portfolios. Chicago Equity manages the assets of
fiduciary and other institutional accounts. Chicago Equity is located at 231
South LaSalle Street, Chicago, Illinois 60697.
BACAP serves as investment sub-adviser to all the other underlying
Funds.
BAAI also serves as the investment adviser to the portfolios of Nations
Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Annuity Trust, each a
registered investment company that is part of the Nations Funds Family. In
addition, BAAI serves as the investment advisor to Hatteras Income Securities,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and Nations Balanced Target Maturity Fund, Inc., each a
closed-end diversified management investment company traded on the New York
Stock Exchange. BACAP also serves as the sub-investment adviser to Nations
Reserves, Nations Annuity Trust, Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Nations Balanced Target Maturity Fund, Inc.
For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, BAAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: __% of the average
daily net assets of the Value Fund; __% of the average daily net assets of the
Blue Chip Master Portfolio; __% of the average daily net assets of the Strategic
Growth Fund; __% of the average daily net assets of the Marsico Focused Equities
Master Portfolio; __% of the average daily net assets of the Small Company Fund;
__% of the average daily net assets of the International Value Fund; __% of the
average daily net assets of the International Equity Master Portfolio; __% of
the average daily net assets of the Investment Grade Bond Fund; __% of the
average daily net assets of the Strategic Income Fund; __% of the average daily
net assets of the Short-Term Income Fund; and __% of the average daily net
assets of the Prime Fund.
54
<PAGE>
For the services provided and expenses assumed pursuant to sub-advisory
agreements, BACAP is entitled to receive from BAAI sub-advisory fees computed
daily and paid monthly, at the annual rates of __% of the average daily net
assets of the Value Fund; __% of the average daily net assets of the Strategic
Growth Fund; __% of the average daily net assets of the Small Company Fund; __%
of the average daily net assets of the Investment Grade Bond Fund; __% of the
average daily net assets of the Strategic Income Fund; __% of the average daily
net assets of the Short-Term Income Fund; and __% of the average daily net
assets of the Prime Fund.
For services provided and expenses assumed pursuant to a sub-advisory
agreement, Gartmore is entitled to receive from BAAI sub-advisory fees, for the
portion of the assets of the International Equity Master Portfolio that it
manages, computed daily and paid monthly at the annual rates of ___%. INVESCO is
entitled to receive from BAAI sub-advisory fees, for the portion of the assets
of the International Equity Master Portfolio that it manages, computed daily and
paid monthly at the annual rates of ___%. Putnam is entitled to receive from
BAAI sub-advisory fees, for the portion of the assets of the International
Equity Master Portfolio that it manages, computed daily and paid monthly at the
annual rates of ___%.
For services provided and expenses assumed pursuant to a sub-advisory
agreement, Brandes is entitled to receive from BAAI sub-advisory fees, computed
daily and paid monthly at the annual rate of ___% of the International Value
Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory
agreement, Marsico Capital is entitled to receive from BAAI sub-advisory fees,
computed daily and paid monthly at the annual rate of ___% of the Marsico
Focused Equities Master Portfolio's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory
agreement, Chicago Equity is entitled to receive from BAAI sub-advisory fees,
computed daily and paid monthly at the annual rate of ___% of the Blue Chip
Master Portfolio's average daily net assets.
From time to time, BAAI (and/or BACAP, Gartmore, INVESCO, Putnam,
Brandes, Chicago Equity or Marsico Capital) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees or
expenses payable by a Fund.
Administrator, Co-Administrator and Sub-Administrator
Stephens Inc. and BAAI (the "Co-Administrators") serve as
co-administrators of the Company.
The Co-Administrators serve under co-administration agreements
("Co-Administration Agreements"), which were approved by the Boards of Directors
on November 5-6, 1998. The Co-Administrators receive, as compensation for their
services rendered under the Co-Administration Agreements, administration fees,
computed daily and paid monthly, at the annual rate of: 0.10% of the average
daily net assets of the Prime Fund; 0.12% of the of the average daily net assets
of the government bond and corporate bond Funds and the international stock
Funds; and 0.13% of the of the average daily net assets of the domestic stock
Funds, of the average daily net assets of each such Fund.
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among
other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to each Company, (iii) furnish corporate secretarial
services to each Company, including coordinating the preparation and
distribution of materials for Board of Directors meetings, (iv) coordinate the
provision of legal advice to each Company with respect to regulatory matters,
(v) coordinate the preparation of reports to each Company's shareholders and the
SEC, including annual and semi-annual reports, (vi) coordinating the provision
of services to each Company by the Transfer Agent, Sub-Transfer Agent and the
Custodian, and (vii) generally assist in all aspects of each Company's
operations. Stephens bears all expenses incurred in connection with the
performance of its services.
55
<PAGE>
Also, pursuant to the Co-Administration Agreement, BAAI has agreed to,
among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Company's reports to shareholders and the SEC, (iv)
prepare and file each Company's federal and state tax returns, (v) perform
monthly compliance testing for the Company, and (vi) prepare and furnish the
Company monthly broker security transaction summaries and transaction listings
and performance information. BAAI bears all expenses incurred in connection with
the performance of its services.
The Co-Administration Agreement may be terminated by a vote of a majority
of the respective Board of Directors, by Stephens or by BAAI, respectively, on
60 days' written notice without penalty. The Co-Administration Agreements are
not assignable without the written consent of the other party. Furthermore, the
Co-Administration Agreements provide that Stephens and BAAI shall not be liable
to the Funds or to their shareholders except in the case of Stephens' or BAAI's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
BNY serves as sub-administrator for the Funds pursuant to
sub-administration agreements. Pursuant to their terms, BNY assists Stephens and
BAAI in supervising, coordinating and monitoring various aspects of the Funds'
administrative operations. For providing such services, BNY is entitled to
receive a monthly fee which is paid by BAAI from the management fees they
receive from the Funds.
The Company had, under the previous agreements, retained Stephens, Inc.
("Administrator") as the administrator and First Data Investors Services Group,
Inc. (the "Co-Administrator") as the co-administrator of the LifeGoal
Portfolios.
Under the previous agreements, the Administrator and Co-Administrator
served under an administration agreement ("Administration Agreement") and
co-administration agreement ("Co-Administration Agreement"), respectively, each
of which was approved by the Board of Directors on July 10, 1996. The
Administrator received, as compensation for its services rendered under the
Administration Agreement and as agent for the Co-Administrator for the services
it provided under the Co-Administration Agreement, an administrative fee of
$10,000 per year per underlying fund in the LifeGoal Portfolio, which was
absorbed by BAAI.
Pursuant to the previous Administration Agreement, the Administrator
had agreed to, among other things, (i) maintain office facilities for the
LifeGoal Portfolios, (ii) furnish statistical and research data, data
processing, clerical, and internal executive and administrative services to the
Company, (iii) furnish corporate secretarial services to the Company, including
coordinating the preparation and distribution of materials for Board of
Directors meetings, (iv) coordinate the provision of legal advice to the Company
with respect to regulatory matters, (v) coordinate the preparation of reports to
the Company's shareholders and the SEC, including annual and semi-annual
reports, (vi) coordinate the provision of services to the Company by the
Co-Administrator, the Transfer Agents and the Custodians, and (vii) generally
assist in all aspects of the Company's operations. Additionally, the
Administrator is authorized to receive, as agent for the Co-Administrator, the
fees payable to the Co-Administrator by the Company for its services rendered
under the Co-Administration Agreement. The Administrator bears all expenses
incurred in connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the LifeGoal Portfolios, (ii) compute each Portfolio's net asset value and
net income, (iii) accumulate information required for the Company's reports to
shareholders and the SEC, (iv) prepare and file the Company's federal and state
tax returns, (v) perform monthly compliance testing for the Company, and (vi)
prepare and furnish the Company monthly broker security transaction summaries
and transaction listings and performance information The Co-Administrator bears
all expenses incurred in connection with the performance of its services.
56
<PAGE>
The table set forth below states the net Co-Administration fees paid to
BAAI and waived for the fiscal period ended March 31, 2000:
<TABLE>
<CAPTION>
Net
Co-Administration Co-Administration Fees
Fees Voluntarily Waived
------------------ ------------------
<S> <C> <C>
LifeGoal Growth Portfolio $ $ 0
LifeGoal Balanced Growth Portfolio 0
LifeGoal Income and Growth Portfolio 0
</TABLE>
The table set forth below states the net Co-Administration fees paid to
Stephens and waived for the fiscal period ended March 31, 2000:
<TABLE>
<CAPTION>
Net
Co-Administration Co-Administration Fees
Fees Voluntarily Waived
------------------ ------------------
<S> <C> <C>
LifeGoal Growth Portfolio $ $ 0
LifeGoal Balanced Growth Portfolio 0
LifeGoal Income and Growth Portfolio 0
</TABLE>
Under the previous administration agreement, Stephens (the previous
administrator for the LifeGoal Portfolios) received no compensation from the
LifeGoal Portfolios for serving as Administrator for the periods ended March 31,
1999, March 31, 1998.
Under the previous co-administration agreement, the dollar amount of
combined Co-Administration fees paid to First Data Investor Services Group, Inc.
(the former co-administrator for the LifeGoal Portfolios), being absorbed by
BAAI as stated above, for the periods ending February 11, 1999 was as follows:
<TABLE>
<CAPTION>
Net
Co-Administration Co-Administration Fees
Fees Voluntarily Waived
------------------ ------------------
<S> <C> <C>
LifeGoal Growth Portfolio $ 20,000 $ 0
LifeGoal Balanced Growth Portfolio 20,000 0
LifeGoal Income and Growth Portfolio 20,000 0
</TABLE>
Under the previous co-administration agreement, the dollar amount of
combined Co-Administration fees paid to First Data Investor Services Group, Inc.
(the former co-administrator for the LifeGoal Portfolios), being absorbed by
BAAI as stated above, for the periods ended March 31, 1998 and March 31, 1997
was as follows:
<TABLE>
<CAPTION>
Net
Co-Administration Co-Administration Fees
Fees Voluntarily Waived
------------------ ------------------
<S> <C> <C>
LifeGoal Growth Portfolio $ 4,959 $ 0
LifeGoal Balanced Growth Portfolio 4,959 0
LifeGoal Income and Growth Portfolio 4,959 0
</TABLE>
57
<PAGE>
Distributor
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the LifeGoal Portfolios.
At a meeting held on July 10, 1996, the Board of Directors selected
Stephens Inc. as Distributor, and approved a distribution agreement
("Distribution Agreement") with the Distributor. Pursuant to the Distribution
Agreement, the Distributor, as agent, sells shares of the LifeGoal Portfolios on
a continuous basis and transmits purchase and redemption orders that its
receives to the Company or the Transfer Agent (as defined under the caption
"Transfer Agents and Custodian"). Additionally, the Distributor has agreed to
use appropriate efforts to solicit orders for the sale of shares and to
undertake such advertising and promotion as it believes appropriate in
connection with such solicitation. Pursuant to the Distribution Agreement, the
Distributor, at its own expense, finances those activities which are primarily
intended to result in the sale of shares of the LifeGoal Portfolios, including,
but not limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing of prospectuses to other than existing shareholders, and
the printing and mailing of sales literature. The Distributor, however, may be
reimbursed for all or a portion of such expenses to the extent permitted by a
distribution plan adopted by the Company pursuant to Rule 12b-1 under the 1940
Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors or a
vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of a LifeGoal Portfolio and (ii) a majority of the directors who are
not parties to the Distribution Agreement or "interested persons" of any such
party by a vote cast in person at a meeting called for such purpose. The
Distribution Agreement is not assignable and is terminable with respect to a
Portfolio, without penalty, on 60 days' notice by the Board of Directors, the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such LifeGoal Portfolio, or by the Distributor.
Distribution Plans And Shareholder Servicing Arrangements For Investor Shares
Investor A Shares
-----------------
The Company has adopted a Shareholder Servicing and Distribution Plan
(the "Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act with respect
to each LifeGoal Portfolio's Investor A Shares. The Investor A Plan provides
that each LifeGoal Portfolio may pay the Distributor or banks, broker/dealers or
other financial institutions that offer shares of the Fund and that have entered
into a Sales Support Agreement with the Distributor ("Selling Agents") or a
Shareholder Servicing Agreement with the Company ("Servicing Agents"), up to
0.25% (on an annualized basis) of the average daily net asset value of such
LifeGoal Portfolio.
Payments under the Investor A Plan may be made to the Distributor for
reimbursements of distribution-related expenses actually incurred by the
Distributor, including, but not limited to, expenses of organizing and
conducting sales seminars, printing of prospectuses and statements of additional
information (and supplements thereto) and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature and costs of administering the Investor A Plan, or to Servicing
Agents that have entered into a Shareholder Servicing Agreement with the Company
for providing shareholder support services to their customers ("Customers")
which hold of record or beneficially Investor A Shares of a Fund. Such
shareholder support services provided by Servicing Agents to holders of Investor
A Shares of the LifeGoal Portfolios may include (i) aggregating and processing
purchase and redemption requests for Investor A Shares from their Customers and
transmitting promptly net purchase and redemption orders to the Company's
distributor or transfer agent; (ii) providing their Customers with a service
that invests the assets of their accounts in Investor A Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend and
distribution payments from the Company on behalf of their Customers; (iv)
providing information periodically to their Customers showing their positions in
Investor A Shares; (v) arranging for bank wires; (vi) responding to their
58
<PAGE>
Customers' inquiries concerning their investment in Investor A Shares; (vii)
providing subaccounting with respect to Investor A Shares beneficially owned by
their Customers or the information necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications from the Company (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to their Customers; (ix) forwarding to
their Customers proxy statements and proxies containing any proposals regarding
the Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as the Company may
reasonably request to the extent the Selling Agent is permitted to do so under
applicable statutes, rules or regulations.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a LifeGoal Portfolio would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the LifeGoal
Portfolio.
For the fiscal periods ended March 31, 2000, March 31, 1999 and March
31, 1998, no 12b-1 fees or CDSC's were paid to the Distributor in connection
with Investor A Shares of the Portfolios.
Investor B Shares
The Directors of the Company have approved a Distribution Plan in
accordance with Rule 12b-1 under the 1940 Act for the Investor B Shares of the
LifeGoal Portfolios (the "Investor B Plan"). Pursuant to the Investor B Plan,
each Portfolio may pay the Distributor for certain expenses that are incurred in
connection with the distribution of shares. Payments under the Investor B Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of Investor B Shares of a Portfolio. Payments to
the Distributor pursuant to the Investor B Plan will be used (i) to compensate
Selling Agents for providing sales support assistance relating to Investor B
Shares, (ii) for promotional activities intended to result in the sale of
Investor B Shares such as to pay for the preparation, printing and distribution
of prospectuses to other than current shareholders, and (iii) to compensate
Selling Agents for providing sales support services with respect to their
Customers who are, from time to time, beneficial and record holders of Investor
B Shares. Currently, substantially all fees paid pursuant to the Investor B Plan
are paid to compensate Selling Agents for providing the services described in
(i) and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor B Shares. Fees received by the Distributor pursuant to the Investor B
Plan will not be used to pay any interest expenses, carrying charges or other
financing costs (except to the extent permitted by the SEC) and will not be used
to pay any general and administrative expenses of the Distributor.
Pursuant to the Investor B Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the LifeGoal Portfolios. Such Selling Agents will be compensated at the annual
rate of up to 0.75% of the average daily net asset value of the Investor B
Shares of the LifeGoal Portfolios held of record or beneficially by such
Customers. The sales support services provided by Selling Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a LifeGoal
Portfolio as accrued. Expenses incurred by the Distributor pursuant to the
Investor B Plan in any given year may exceed the sum of the fees received under
the Investor B Plan and payments received pursuant to contingent deferred sales
charges. Any such excess may be recovered by the Distributor in future years so
long as the Investor B Plan is in effect. If the Investor B Plan were terminated
or not continued, a LifeGoal Portfolio would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the LifeGoal
Portfolio or recovered through contingent deferred sales charges.
In addition, the Directors have approved a Shareholder Servicing Plan
("Servicing Plan") with respect to the Investor B Shares of the LifeGoal
Portfolios (the "Investor B Servicing Plan"). Pursuant to the Investor B
Servicing Plan, each LifeGoal Portfolio may pay banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with Nations Fund ("Servicing Agents") for certain expenses that are incurred by
the Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the LifeGoal Portfolios' Investor B Shares. The
shareholder services provided by the Servicing Agents may include (i)
aggregating and processing purchase and redemption requests for such Investor B
59
<PAGE>
Shares from Customers and transmitting promptly net purchase and redemption
orders to the Company's distributor or transfer agent; (ii) providing Customers
with a service that invests the assets of their accounts in such Investor B
Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in such
Investor B Shares; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in such Investor B Shares; (vii) providing
subaccounting with respect to such Investor B Shares beneficially owned by
Customers or providing the information necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications from the Company (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as the Company may
reasonably request to the extent the Servicing Agent is permitted to do so under
applicable statutes, rules or regulations.
For the fiscal periods ended March 31, 2000, March 31, 1999 and March
31, 1998, no 12b-1 fees or CDSC's were paid to the Distributor in connection
with Investor B Shares of the Portfolios.
Investor C Shares
The Directors of the Company have approved a Distribution Plan in
accordance with Rule 12b-1 under the 1940 Act for the Investor C Shares of the
LifeGoal Portfolios (the "Investor C Plan"). Pursuant to the Investor C Plan,
each Portfolio may pay the Distributor for certain expenses that are incurred in
connection with the distribution of shares. Payments under the Investor C Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of Investor C Shares of a Portfolio. Payments to
the Distributor pursuant to the Investor C Plan will be used (i) to compensate
Selling Agents for providing sales support assistance relating to Investor C
Shares, (ii) for promotional activities intended to result in the sale of
Investor C Shares such as to pay for the preparation, printing and distribution
of prospectuses to other than current shareholders, and (iii) to compensate
Selling Agents for providing sales support services with respect to their
Customers who are, from time to time, beneficial and record holders of Investor
C Shares. Currently, substantially all fees paid pursuant to the Investor C Plan
are paid to compensate Selling Agents for providing the services described in
(i) and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor C Shares. Fees received by the Distributor pursuant to the Investor C
Plan will not be used to pay any interest expenses, carrying charges or other
financing costs (except to the extent permitted by the SEC) and will not be used
to pay any general and administrative expenses of the Distributor.
Pursuant to the Investor C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor C Shares of
the LifeGoal Portfolios. Such Selling Agents will be compensated at the annual
rate of up to 0.75% of the average daily net asset value of the Investor C
Shares of the LifeGoal Portfolios held of record or beneficially by such
Customers. The sales support services provided by Selling Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor C Plan in
any given year may exceed the sum of the fees received under the Investor C Plan
and payments received pursuant to contingent deferred sales charges. Any such
excess may be recovered by the Distributor in future years so long as the
Investor C Plan is in effect. If the Investor C Plan were terminated or not
continued, a LifeGoal Portfolio would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the LifeGoal Portfolio
or recovered through contingent deferred sales charges.
60
<PAGE>
In addition, the Directors have approved a Shareholder Servicing Plan
("Servicing Plan") with respect to the Investor C Shares of the LifeGoal
Portfolios (the "Investor C Servicing Plan"). Pursuant to the Investor C
Servicing Plan, each LifeGoal Portfolio may pay banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with the Company ("Servicing Agents") for certain expenses that are incurred by
the Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the LifeGoal Portfolios' Investor C Shares. The
shareholder services provided by the Servicing Agents may include (i)
aggregating and processing purchase and redemption requests for such Investor C
Shares from Customers and transmitting promptly net purchase and redemption
orders to the Company's distributor or transfer agent; (ii) providing Customers
with a service that invests the assets of their accounts in such Investor C
Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in such
Investor C Shares; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in such Investor C Shares; (vii) providing
subaccounting with respect to such Investor C Shares beneficially owned by
Customers or providing the information necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications from the Company (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as the Company may
reasonably request to the extent the Servicing Agent is permitted to do so under
applicable statutes, rules or regulations.
For the fiscal periods ended March 31, 2000, March 31, 1998 and March
31, 1997, no 12b-1 fees or CDSC's were paid to the Distributor in connection
with Investor C Shares of the Portfolios.
Information Applicable to Investor A, Investor B and Investor C Shares
The Investor A Plan, the Investor B Plan, the Investor B Servicing
Plan, the Investor C Plan and the Investor C Servicing Plan, (each a "Plan" and
collectively the "Plans") may only be used for the purposes specified above and
as stated in each such Plan. Compensation payable to Selling Agents or Servicing
Agents for shareholder support services under the Plans is subject to, among
other things, the National Association of Securities Dealers, Inc.'s ("NASD")
Conduct Rules governing receipt by NASD members of shareholder servicing plan
fees from registered investment companies (the "NASD Servicing Plan Rule"),
which became effective on July 7, 1993. Such compensation shall only be paid for
services determined to be permissible under the NASD Servicing Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on July 10, 1996 (except
for the Investor B Plan and Investor B Servicing Plan, approved on June 4,
1997). The Plans continue in effect as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.
In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B or Investor C Shares and the holders of such shares. The Plans have
been approved by the initial shareholder.
61
<PAGE>
Each Plan may be terminated with respect to its shares by vote of a
majority of the Qualified Directors or by vote of a majority of holders of its
outstanding voting securities. Any change in a Plan that would increase
materially the distribution expenses paid by the Investor A, Investor B or
Investor C Shares requires shareholder approval; otherwise, each Plan may be
amended by the directors, including a majority of the Qualified Directors, by
vote cast in person at a meeting called for the purpose of voting upon such
amendment. The Investor B Servicing Plan and Investor C Servicing Plan may be
terminated by a vote of a majority of the Qualified Directors. As long as a Plan
is in effect, the selection or nomination of the Qualified Directors is
committed to the discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling,
and/or Servicing Agents of compensation from the Company in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC or the Department of Labor, are urged to consult their legal advisers before
investing such assets in Investor Shares.
Shareholder Administration Plan (Primary B Shares)
As stated in the Prospectus describing the Primary B Shares, the
Company has a separate Shareholder Administration Plan (the "Administration
Plan") with respect to such shares. Pursuant to the Administration Plan, the
Company may enter into agreements ("Administration Agreements") with
broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Primary B Shares ("Servicing Agents"). The Administration
Plan provides that pursuant to the Administration Agreements, Servicing Agents
shall provide the shareholder support services as set forth therein to their
Customers who may from time to time own of record or beneficially Primary B
Shares in consideration for the payment of up to 0.60% (on an annualized basis)
of the net asset value of such shares. Such services may include: (i)
aggregating and processing purchase, exchange and redemption requests for
Primary B Shares from Customers and transmitting promptly net purchase and
redemption orders with the Distributor or the transfer agents; (ii) providing
Customers with a service that invests the assets of their accounts in Primary B
Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Primary B Shares; (v) arranging for bank wires; (vi) responding to Customer
inquiries concerning their investment in Primary B Shares; (vii) providing
sub-accounting with respect to Primary B Shares beneficially owned by Customers
or the information necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications (such as proxies, shareholder reports
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding an Administration Agreement; (x) employee
benefit plan recordkeeping, administration, custody and trustee services; (xi)
general shareholder liaison services; and (xii) providing such other similar
services as may reasonably be requested to the extent permitted under applicable
statutes, rules, or regulations.
The Administration Plan also provides that in no event may the portion
of the shareholder administration fee that constitutes a "service fee," as the
term is defined in the NASD Servicing Plan Rule, exceed 0.25% of the average
daily net asset value of the Primary B Shares of a Portfolio. In addition, to
the extent any portion of the fees payable under the Plan is deemed to be for
services primarily intended to result in the sale of LifeGoal Portfolio Primary
B Shares, such fees are deemed approved and may be paid under the Administration
Plan. Accordingly, the Administration Plan has been approved and will be
operated pursuant to Rule 12b-1 under the 1940 Act. Such Plan shall continue in
effect as long as the Board of Directors, including a majority of the Qualified
Directors, specifically approves the Plan at least annually.
62
<PAGE>
Fees Paid Pursuant to Shareholder Servicing/Distribution Plans
Investor A Shares
<TABLE>
<CAPTION>
Net
Net Fees Paid (Shareholder Net
Fees Paid (12b-1 Component) Servicing Component) Fees
FUND Year ended 3/31/2000 Year ended 3/31/2000 Paid
---- -------------------- -------------------- ----
<S> <C> <C> <C>
LifeGoal Growth Portfolio $ $0 $
LifeGoal Balanced Growth Portfolio 0
LifeGoal Income and Growth Portfolio 0
</TABLE>
Fees Paid Pursuant to Distribution Plans
Investor B Shares
<TABLE>
<CAPTION>
Net
Net Fees Paid (Shareholder Net
Fees Paid (12b-1 Component) Servicing Component) Fees
FUND Year ended 3/31/2000 Year ended 3/31/2000 Paid
---- -------------------- -------------------- ----
<S> <C> <C> <C>
LifeGoal Growth Portfolio $ $ $
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
</TABLE>
Fees Paid Pursuant to Distribution Plans
Investor C Shares
<TABLE>
<CAPTION>
Net
Net Fees Paid (Shareholder Net
Fees Paid (12b-1 Component) Servicing Component) Fees
FUND Year ended 3/31/2000 Year ended 3/31/2000 Paid
---- -------------------- -------------------- ----
<S> <C> <C> <C>
LifeGoal Growth Portfolio $ $ $
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
</TABLE>
63
<PAGE>
Fees Paid Pursuant to the Administration Plan
Primary B Shares
Net Admin Net Admin
Fees Paid Fees Waived
Year ended Year ended
3/31/2000 3/31/2000
--------- ---------
LifeGoal Growth Portfolio $ $
LifeGoal Balanced Growth Portfolio
LifeGoal Income and Growth Portfolio
Expenses
The Administrator and/or Co-Administrator furnishes, without additional
cost to the Company, the services of the Treasurer and Secretary of the Company
and such other personnel (other than the personnel of the Adviser or
Sub-Adviser) as are required for the proper conduct of the Company's affairs.
The Distributor bears the incremental expenses of printing and distributing
prospectuses used by the Distributor or furnished by the Distributor to
investors in connection with the public offering of the Company's Shares and the
costs of any other promotional or sales literature, except that to the extent
permitted under the Plans relating to the Investor A, Investor B and Investor C
Shares of each LifeGoal Portfolio, sales-related expenses incurred by the
Distributor may be reimbursed by the Company.
The Company pays, or causes to be paid, all other expenses of the
Company, including without limitation: the fees of the Adviser, the Sub-Adviser,
the Administrator and Co-Administrator; the charges and expenses of any
registrar, any custodian or depository appointed by the Company for the
safekeeping of its cash, fund securities and other property, and any stock
transfer, dividend or accounting agent or agents appointed by the Company;
brokerage commissions chargeable to the Company in connection with fund
securities transactions to which the Company is a party; all taxes, including
securities issuance and transfer taxes; corporate fees payable by the Company to
federal, state or other governmental agencies; all costs and expenses in
connection with the registration and maintenance of registration of the Company
and its shares with the SEC and other jurisdictions (including filing fees,
legal fees and disbursements of counsel); the costs and expenses of typesetting
prospectuses and statements of additional information of the Company (including
supplements thereto) and periodic reports and of printing and distributing such
prospectuses and statements of additional information (including supplements
thereto) to the Company's shareholders; all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing proxy statements and
reports to shareholders; fees and travel expenses of directors or director
members of any advisory board or committee; all expenses incident to the payment
of any dividend or distribution, whether in shares or cash; charges and expenses
of any outside service used for pricing of the Company's shares; fees and
expenses of legal counsel and of independent auditors in connection with any
matter relative to the Company; membership dues of industry associations;
interest payable on Company borrowings; postage and long-distance telephone
charges; insurance premiums on property or personnel (including officers and
directors) of the Company which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Company's operation unless otherwise explicitly assumed by the Adviser
(and/or the Sub-Adviser), the Administrator or Co-Administrator. The Adviser,
under its investment advisory agreement with the LifeGoal Portfolios, has agreed
to absorb all expenses of the LifeGoal Portfolios, included those listed above,
except for taxes, brokerage fees and commissions, extraordinary expenses and any
applicable Rule 12b-1 fees, shareholder servicing fees and/or shareholder
administration fees.
Expenses of the Company which are not directly attributable to the
operations of any class of shares of LifeGoal Portfolio are pro-rated among all
classes of shares of LifeGoal Portfolios of the Company based upon the relative
net assets of each class or LifeGoal Portfolio. Expenses of the Company which
are not directly attributable to a specific class of shares but are directly
attributable to a specific LifeGoal Portfolio are prorated among all the classes
of shares of such LifeGoal Portfolio based upon the relative net assets of each
such class of shares. Expenses of the Company which are directly attributable to
a class of shares are charged against the income available for distribution as
dividends to such class of shares.
64
<PAGE>
Transfer Agents And Custodians
First Data Investors Services Group, Inc., a wholly owned subsidiary of
First Data Corporation, is located at One Exchange Place, 53 State Street,
Boston, Massachusetts 02109, and serves as transfer agent (the "Transfer Agent")
for the Company's Primary Shares and Investor Shares. Under a transfer agency
agreement, the Transfer Agent maintains shareholder account records for the
Company, handles certain communications between shareholders and the Company,
distributes dividends and distributions payable by the Company to shareholders,
produces statements with respect to account activity for the Company and its
shareholders for these services.
Bank of America serves as custodian (the "Custodian") for the portfolio
securities (and for shares of underlying Nations Funds) and cash of the LifeGoal
Portfolios. Except with respect to shares of underlying Nations Funds, the
Custodian maintains custody of the LifeGoal Portfolios' securities, cash and
other property, delivers securities against payment upon sale and pays for
securities against delivery upon purchase, makes payments on behalf of the
LifeGoal Portfolios for payments of dividends, distributions and redemptions,
endorses and collects on behalf of the LifeGoal Portfolios all checks, and
receives all dividends and other distributions made on securities owned by the
LifeGoal Portfolios. The Company maintains direct custody of the LifeGoal
Portfolios' shares of underlying Nations Funds.
Independent Accountants and Reports
The Board of Directors has selected PricewaterhouseCoopers LLP, 1177
Avenue of the Americas, New York, New York, 10036, as the Company's independent
accountant to audit the Company's books and review the Company's tax returns for
the LifeGoal Portfolios' fiscal year ending March 31, 2001.
The Annual Report for the fiscal period ended March 31, 2000, is hereby
incorporated by reference in this SAI. The Annual Report will be sent free of
charge with this SAI to any shareholder who requests this SAI.
Counsel
Morrison & Foerster LLP serves as legal counsel to the Company. Its
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
Morrison & Foerster LLP, counsel to the Company and special counsel to
Bank of America has advised the Company and Bank of America that Bank of America
and its affiliates may perform the services contemplated by the Investment
Advisory Agreement and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
DESCRIPTION OF SHARES
---------------------
The Company' Boards of Directors has authorized the issuance of the
classes of shares of the LifeGoal Portfolios indicated above and may, in the
future, authorize the creation of additional investment portfolios or classes of
shares.
The Board may classify or reclassify any unissued shares of the Company
into shares of any class, classes or Portfolio in addition to those already
authorized by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any LifeGoal Portfolio or class. Any such
classification or reclassification will comply with the provisions of the 1940
Act. Fractional shares shall have the same rights as full shares to the extent
of their proportionate interest.
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All shares of a LifeGoal Portfolio have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a LifeGoal Portfolio's LifeGoal Portfolio a mental
investment policy would be voted upon only by shareholders of the LifeGoal
Portfolio involved. Additionally, approval of an advisory contract is a matter
to be determined separately by LifeGoal Portfolio. Approval by the shareholders
of one LifeGoal Portfolio is effective as to that LifeGoal Portfolio whether or
not sufficient votes are received from the shareholders of the other LifeGoal
Portfolios to approve the proposal as to those Portfolios. As used in the
Prospectus and in this SAI, the term "majority," when referring to approvals to
be obtained from shareholders of a LifeGoal Portfolio, means the vote of the
lesser of (i) 67% of the shares of the LifeGoal Portfolio represented at a
meeting if the shareholders of more than 50% of the outstanding interests of the
LifeGoal Portfolio are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the LifeGoal Portfolio. The term "majority," when
referring to the approvals to be obtained from shareholders of a Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the shareholders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act. However,
the Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Board member, if requested in
writing by the shareholders of at least 10% of the Company's outstanding voting
shares, and to assist in communicating with other shareholders as required by
Section 16(c) of the 1940 Act.
Each share of a LifeGoal Portfolio represents an equal proportional
interest in the LifeGoal Portfolio with each other share and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the LifeGoal Portfolio, as are declared in the discretion of the Board members.
In the event of the liquidation or dissolution of the Company, shareholders of
the Company's LifeGoal Portfolios are entitled to receive the assets
attributable to the LifeGoal Portfolio that are available for distribution, and
a distribution of any general assets not attributable to a particular LifeGoal
Portfolio that are available for distribution in such manner and on such basis
as the Board members in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.
Net investment income for the LifeGoal Portfolios for dividend purposes
consists of (i) interest accrued and original issue discount earned on a
LifeGoal Portfolio's assets, (ii) plus the amortization of market discount and
minus the amortization of market premium on such assets, (iii) less accrued
expenses directly attributable to the LifeGoal Portfolio and the general
expenses of the Company prorated to a LifeGoal Portfolio on the basis of its
relative net assets, plus dividend or distribution income on a LifeGoal
Portfolio's assets.
Prior to purchasing shares in one of the LifeGoal Portfolios, the
impact of dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the dividend or distribution. All or a portion of such
dividend or distribution, although in effect a return of capital, may be subject
to tax.
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving an amount equal to the fair market value of the
shares received, determined as of the reinvestment date.
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The LifeGoal Portfolios use the so-called "equalization accounting
method" to allocate a portion of earnings and profits to redemption proceeds.
This method permits a LifeGoal Portfolio to achieve more balanced distributions
for both continuing and departing shareholders. Continuing shareholders should
realize tax savings or deferrals through this method, and departing shareholders
will not have their tax obligations change. Although using this method will not
affect a LifeGoal Portfolio's total returns, it may reduce the amount that
otherwise would be distributable to continuing shareholders by reducing the
effect of redemptions on dividend and distribution amounts.
The following table provides the expected expense ratios for Primary A
Shares of each of the selected underlying Nations Funds appearing in each of the
underlying Funds' prospectuses dated August 1, 2000.
<TABLE>
<CAPTION>
------------------------------------------------------------------ ----------------------- --------------------
(after fee waivers (before fee
and/or expense waivers and/or
LifeGoal Portfolios Underlying Funds reimbursements) expense
reimbursements)
------------------------------------------------------------------ ----------------------- --------------------
<S> <C> <C>
------------------------------------------------------------------ ----------------------- --------------------
Value Fund
------------------------------------------------------------------ ----------------------- --------------------
Blue Chip Fund
------------------------------------------------------------------ ----------------------- --------------------
Strategic Growth Fund
------------------------------------------------------------------ ----------------------- --------------------
Small Company Fund
------------------------------------------------------------------ ----------------------- --------------------
Marsico Focused Equities Fund
------------------------------------------------------------------ ----------------------- --------------------
International Equity Fund
------------------------------------------------------------------ ----------------------- --------------------
International Value Fund
------------------------------------------------------------------ ----------------------- --------------------
Investment Grade Bond Fund
------------------------------------------------------------------ ----------------------- --------------------
Prime Fund
------------------------------------------------------------------ ----------------------- --------------------
Strategic Income Fund
------------------------------------------------------------------ ----------------------- --------------------
Short-Term Income Fund
------------------------------------------------------------------ ----------------------- --------------------
</TABLE>
Net Asset Value Determination
Shares of the common stock of each class of shares of each LifeGoal
Portfolio that are offered by the Prospectuses are sold at their respective net
asset value next determined after the receipt of the purchase order.
Shareholders may at any time redeem all or a portion of their shares at net
asset value next determined following receipt of a redemption order, less any
contingent deferred sales charge applicable to Investor C Shares.
The net asset value per share of each of the LifeGoal Portfolios is
determined at the times and in the manner described in the Prospectuses.
Portfolio securities of a LifeGoal Portfolio for which market
quotations are not readily available, if any, are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
in a manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost, which approximates market value.
Generally, trading in U.S. Government securities and money market
instruments is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities, if any,
used in computing the net asset value of the shares of a Portfolio are
determined as of such times. Occasionally, events affecting the value of such
securities may occur between the times at which they are determined and the
close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the directors.
Exchanges
By use of the exchange privilege, the holder of Investor Shares and/or
Primary Shares authorizes the transfer agent or the shareholder's financial
institution to rely on telephonic instructions from any person representing
himself to be the investor and reasonably believed to be genuine. The transfer
agent's or a financial institution's records of such instructions are binding.
Exchanges are taxable transactions for federal income tax purposes; therefore, a
shareholder will realize a capital gain or loss depending on whether the
Investor Shares and/or Primary Shares being exchanged have a value which is more
or less than their adjusted cost basis.
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The Company may limit the number of times the exchange privilege may be
exercised by a shareholder within a specified period of time. Also, the exchange
privilege may be terminated or revised at any time by the Company upon such
notice as may be required by applicable regulatory agencies (presently sixty
days for termination or material revision), provided that the exchange privilege
may be terminated or materially revised without notice under certain unusual
circumstances.
The Prospectuses for the Investor Shares and Primary Shares of each
LifeGoal Portfolio describe the exchange privileges available to holders of such
Investor Shares and Primary Shares, respectively.
Dividends And Distributions
Each LifeGoal Portfolio anticipates distributing substantially all of
its investment company taxable income for each taxable year. Such distributions
will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes.
A LifeGoal Portfolio may either retain or distribute to shareholders
its net capital gain for each taxable year. Each LifeGoal Portfolio currently
intends to distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder has
held his/her Shares or whether such gain was recognized by the LifeGoal
Portfolio prior to the date on which the shareholder acquired his/her shares.
Conversely, if a LifeGoal Portfolio elects to retain its net capital gain, the
LifeGoal Portfolio will be taxed thereon (except to the extent of any available
capital loss carryovers) at the applicable corporate tax rate. If a Portfolio
elects to retain its net capital gain, it is expected that the LifeGoal
Portfolio also will elect to have shareholders treated as if each received a
distribution of his or her pro rata share of such gain, with the result that
each shareholder will be required to report his or her pro rata share of such
gain on his or her tax return as long-term capital gain, will receive a
refundable tax credit for his or her share of tax paid by the LifeGoal Portfolio
on the gain and will increase the basis for his or her Shares by an amount equal
to the deemed distribution less the tax credit.
Dividends and distributions from net investment income, for each
LifeGoal Portfolio are declared and paid quarterly, and capital gain
distributions are declared and paid annually. The Investor A, Investor B,
Investor C and Primary B Shares of the LifeGoal Portfolios accrue additional
expense, not borne by the Primary A Shares, as a result of the applicable Rule
12b-1 Plan, Shareholder Servicing Plan and/or Shareholder Administration Plan.
Consequently, a separate calculation is made to arrive at the net asset value
per share and dividends of each class of shares of the LifeGoal Portfolios.
Net investment income for the LifeGoal Portfolios for dividend purposes
consists of (i) interest accrued and original issue discount earned on a
LifeGoal Portfolio's assets, (ii) less accrued expenses directly attributable to
the LifeGoal Portfolio and the general expenses of the Company prorated to a
LifeGoal Portfolio on the basis of its relative net assets, plus dividend or
distribution income on a LifeGoal Portfolio's assets.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following information supplements and should be read in conjunction
with the Prospectus. The Prospectus of each LifeGoal Portfolio describes
generally the tax treatment of distributions by the LifeGoal Portfolios. This
section of the SAI includes additional information concerning Federal income
taxes.
General
Each LifeGoal Portfolio intends to qualify as a regulated investment
company under Subchapter M of the Code, as long as such qualification is in the
best interest of the LifeGoal Portfolio's shareholders. Each LifeGoal Portfolio
will be treated as a separate entity for Federal income tax purposes. Thus, the
provisions of the Code applicable to regulated investment companies generally
will be applied to each LifeGoal Portfolio, rather than to the Company as a
whole. In addition, net capital gain, net investment income, and operating
expenses will be determined separately for each LifeGoal Portfolio. As a
regulated investment company, each LifeGoal Portfolio will not be taxed on its
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net investment income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each LifeGoal Portfolio derive at least 90%
of its annual gross income from dividends, interest, certain payments with
respect to securities loans, gain from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gain are directly
related to the LifeGoal Portfolio's principal business of investing in stock or
securities) and other income (including but not limited to gain from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies. In addition, the Code requires that
each LifeGoal Portfolio diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the
LifeGoal Portfolio's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the LifeGoal Portfolio's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the LifeGoal Portfolio controls and which are
determined to be engaged in the same or similar trades or businesses.
The LifeGoal Portfolios also must distribute or be deemed to distribute
to their shareholders at least 90% of their net investment income (which, for
this purpose, includes net short-term capital gain) earned in each taxable year.
In general, these distributions must actually or be deemed to be made in the
taxable year. However, in certain circumstances, such distributions may be made
in the 12 months following the taxable year. Furthermore, distributions declared
in October, November or December of one taxable year and paid by January 31 of
the following taxable year will be treated as paid by December 31 of the first
taxable year. The LifeGoal Portfolios intend to pay out substantially all of
their net investment income and net realized capital gain (if any) for each
year.
In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
As described above, the Code permits a LifeGoal Portfolio to invest
greater than 25% of the value of its assets in the securities of other regulated
investment companies, such as a Nations Fund. In this regard, each Nations Fund
also must meet the requirements set forth above for regulated investment
companies. Failure of a Nations Fund to qualify could cause a LifeGoal Portfolio
investing therein to fail to qualify as a regulated investment company.
Excise Tax
A 4% nondeductible excise tax will be imposed on each LifeGoal
Portfolio (other than to the extent of its tax-exempt interest income) to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. Each LifeGoal Portfolio intends to actually or be deemed to
distribute substantially all of its net investment income and net capital gain
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.
Taxation of Investments of a Regulated Investment Company
Although the LifeGoal Portfolios may invest directly in portfolio
securities, the LifeGoal Portfolios intends to invest primarily in the
securities of an underlying Nations Fund. The following discussion regarding
investments of a regulated investment company therefore applies equally to
investments made by a LifeGoal Portfolio, and to investments made by a Nations
Fund.
Except as provided herein, gain and loss on the sale of portfolio
securities by a regulated investment company generally will be capital gain and
loss. Such gain and loss will ordinarily be long-term capital gain and loss if
the securities have been held by the regulated investment company for more than
one year at the time of disposition of the securities.
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Gain recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a regulated
investment company at a market discount (generally at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of market discount which accrued, but was not previously recognized
pursuant to an available election, during the term the regulated investment
company held the debt obligation.
If an option granted by a regulated investment company lapses or is
terminated through a closing transaction, such as a repurchase by the regulated
investment company of the option from its holder, the regulated investment
company will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the regulated
investment company in the closing transaction. Some realized capital loss may be
deferred if they result from a position which is part of a "straddle," discussed
below. If securities are sold by a regulated investment company pursuant to the
exercise of a call option written by it, the regulated investment company will
add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale. If securities are purchased
by a regulated investment company pursuant to the exercise of a put option
written by it, such regulated investment company will subtract the premium
received from its cost basis in the securities purchased.
The amount of any gain or loss realized by a regulated investment
company on closing out a regulated futures contract will generally result in a
realized capital gain or loss for Federal income tax purposes. Regulated futures
contracts held at the end of each fiscal year will be required to be "marked to
market" for Federal income tax purposes pursuant to Section 1256 of the Code. In
this regard, they will be deemed to have been sold at market value. Sixty
percent (60%) of any net gain or loss recognized on these deemed sales, and
sixty percent (60%) of any net realized gain or loss from any actual sales,
generally will be treated as long-term capital gain or loss, and the remaining
forty percent (40%) of deemed and actual sales will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a regulated investment company will
generally recognize ordinary income or loss to the extent gain or loss realized
on the disposition of portfolio securities is attributable to changes in foreign
currency exchange rates. In addition, gain or loss realized on the disposition
of a foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, generally will be treated
as ordinary income or loss. The LifeGoal Portfolios will attempt to monitor
Section 988 transactions, where applicable, to avoid adverse Federal tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, loss realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If a regulated investment company enters into a "constructive sale" of
any appreciated position in stock, a partnership interest, or certain debt
instruments, the regulated investment company must recognize gain (but not loss)
with respect to that position. For this purpose, a constructive sale occurs when
the regulated investment company enters into one of the following transactions
with respect to the same or substantially identical property: (i) a short sale;
(ii) an offsetting notional principal contract; or (iii) a futures or forward
contract.
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If a regulated investment company purchases shares in a "passive
foreign investment company" ("PFIC"), the regulated investment company may be
subject to Federal income tax and an interest charge imposed by the Internal
Revenue Service ("IRS") upon certain distributions from the PFIC or the
regulated investment company's disposition of its PFIC shares. If a LifeGoal
Portfolio invests in a PFIC, the LifeGoal Portfolio intends to make an available
election to mark-to-market its interest in PFIC shares. Under the election, the
LifeGoal Portfolio will be treated as recognizing at the end of each taxable
year the difference, if any, between the fair market value of its interest in
the PFIC shares and its basis in such shares. In some circumstances, the
recognition of loss may be suspended. The LifeGoal Portfolio will adjust its
basis in the PFIC shares by the amount of income (or loss) recognized. Although
such income (or loss) will be taxable to the LifeGoal Portfolio as ordinary
income (or loss) notwithstanding any distributions by the PFIC, the LifeGoal
Portfolio will not be subject to Federal income tax or the interest charge with
respect to its interest in the PFIC under the election.
Capital Gain Distributions
Distributions which are designated by a LifeGoal Portfolio as capital
gain distributions will be taxed to shareholders as long-term term capital gain
(to the extent such distributions equal or exceed the LifeGoal Portfolio's
actual net capital gain for the taxable year), regardless of how long a
shareholder has held LifeGoal Portfolio shares. Such distributions will be
designated as capital gain distributions in a written notice mailed by the
LifeGoal Portfolio to its shareholders not later than 60 days after the close of
the LifeGoal Portfolio's taxable year.
Disposition of Fund Shares
A disposition of LifeGoal Portfolio shares pursuant to a redemption
(including a redemption in-kind) or an exchange ordinarily will result in a
taxable capital gain or loss, depending on the amount received for the shares
(or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of LifeGoal Portfolio
shares within 90 days of having acquired such shares and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge on a new purchase of shares of the LifeGoal Portfolio or a different
regulated investment company, the sales charge previously incurred acquiring the
LifeGoal Portfolio's shares shall not be taken into account (to the extent such
previous sales charges do not exceed the reduction in sales charges on the new
purchase) for the purpose of determining the amount of gain or loss on the
disposition, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of shares
of the LifeGoal Portfolio will be disallowed to the extent that substantially
identical shares are acquired within the 61-day period beginning 30 days before
and ending 30 days after the shares are disposed of.
If a shareholder receives a capital gain distribution with respect to
any LifeGoal Portfolio share and such LifeGoal Portfolio share is held for six
months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that LifeGoal Portfolio share will be treated as a long-term capital
loss to the extent of the capital gain distribution. In addition, if a
shareholder holds LifeGoal Portfolio shares for six months or less, any loss on
the sale or exchange of those shares will be disallowed to the extent of the
amount of exempt-interest dividends received with respect to the shares. The
Treasury Department is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular dividend distributions where a LifeGoal Portfolio
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have been issued as of the date of this SAI. The loss
disallowance rules described in this paragraph do not apply to loss realized
under a periodic redemption plan.
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Federal Income Tax Rates
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 20%; and the maximum corporate tax rate applicable to ordinary income
and net capital gain is 35% (marginal tax rates may be higher for some
corporations to reduce or eliminate the benefit of lower marginal income tax
rates). Naturally, the amount of tax payable by an individual or corporation
will be affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding
The Company may be required to withhold, subject to certain exemptions,
at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual LifeGoal Portfolio
shareholder, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if the IRS notifies the Company that the
shareholder's TIN is incorrect or that the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed on
the shareholder, and may be claimed as a tax payment on the shareholder's
federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company also could
subject the investor to penalties imposed by the IRS.
Corporate Shareholders and Dividends Received Deduction
Corporate shareholders of the LifeGoal Portfolios may be eligible for
the dividends-received deduction on distributions attributable to a Portfolio's
dividends received from domestic corporations, which, if received directly by
the corporate shareholder, would qualify for such deduction. A distribution by a
LifeGoal Portfolio attributable to dividends of a domestic corporation will only
qualify for the dividends-received deduction if (i) the corporate shareholder
generally holds the LifeGoal Portfolio shares upon which the distribution is
made for at least 46 days during the 90 day period beginning 45 days prior to
the date upon which the shareholder becomes entitled to the distribution; and
(ii) the LifeGoal Portfolio generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the LifeGoal Portfolio
becomes entitled to such dividend income.
To the extent a LifeGoal Portfolio receives from a regulated investment
company dividends designated by such regulated investment company as other than
capital gain dividends, corporate shareholders of the LifeGoal Portfolio also
may be eligible for the dividends-received deduction. Like the requirements
described above, a distribution by a regulated investment company attributable
to dividends of a domestic corporation will only qualify for the
dividends-received deduction if (i) the corporate shareholder generally holds
the LifeGoal Portfolio shares upon which the distribution is made for at least
46 days during the 90 day period beginning 45 days prior to the date upon which
the shareholder becomes entitled to the distribution; (ii) the LifeGoal
Portfolio generally holds the shares of the regulated investment company
producing the dividend income for at least 46 days during the 90 day period
beginning 45 days prior to the date upon which the LifeGoal Portfolio becomes
entitled to such dividend income; and (iii) the regulated investment company
generally holds the shares of the domestic corporation producing the dividend
income for at least 46 days during the 90 day period beginning 45 days prior to
the date upon which the regulated investment company becomes entitled to such
dividend income.
Foreign Shareholders
Under the Code, distributions of net investment income by a LifeGoal
Portfolio to a nonresident alien individual, foreign trust (i.e., trust which a
U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (each, a "foreign shareholder") will be subject to U.S. withholding
tax (at a rate of 30% or a lower treaty rate, if applicable). Withholding will
not apply if a distribution paid by the LifeGoal Portfolio to a foreign
shareholder is "effectively connected" with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the foreign shareholder), in which case the reporting and withholding
requirements applicable to U.S. persons will apply. Distributions of capital
gain are generally not subject to tax withholding.
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New Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding,
U.S. income tax withholding and information reporting rules applicable to
foreign shareholders. The New Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
Among other things, the New Regulations will permit the LifeGoal Portfolios to
estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Foreign Taxes
Income and dividends received by a LifeGoal Portfolio from foreign
securities and gain realized by the LifeGoal Portfolio on the disposition of
foreign securities may be subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Although in some circumstances a
regulated investment company can elect to "pass through" foreign tax credits to
its shareholders, the LifeGoal Portfolios do not expect to be eligible to make
such an election.
Other Matters
Investors should be aware that the investments to be made by the
LifeGoal Portfolios may involve sophisticated tax rules that may result in
income or gain recognition by the LifeGoal Portfolios without corresponding
current cash receipts. Although the LifeGoal Portfolios will seek to avoid
significant noncash income, such noncash income could be recognized by the
LifeGoal Portfolios, in which case the LifeGoal Portfolios may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the LifeGoal Portfolios. Each
investor is urged to consult his or her tax advisor regarding specific questions
as to Federal, state, local or foreign taxes.
SECURITY HOLDERS
----------------
The name, address and percentage of ownership of each person who is
known by the Registrant to have owned of record or beneficially five percent or
more of any of the LifeGoal Portfolios as of July 20, 1999 is:
<TABLE>
<CAPTION>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- -------- -------
<S> <C> <C> <C> <C>
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- -------- -------
<S> <C> <C> <C> <C>
</TABLE>
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Company's
LifeGoal Portfolios may be obtained by calling the Company at (800) 321-7854.
From time to time, the yield and total return of a LifeGoal Portfolio's
Investor Shares and Primary Shares may be quoted in advertisements, shareholder
reports, and other communications to shareholders. Each LifeGoal Portfolio of
the Company also may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising materials and sales literature. Performance
information is available by calling 1-800-321-7854 with respect to Investor
Shares and 1-800-621-2192 with respect to Primary Shares.
74
<PAGE>
The international investment philosophy of certain of the underlying
Nation Funds is based on the premise that significant opportunities exist
outside of the United States. In fact, two-thirds of the world's investment
opportunities are outside of the United States and foreign stock markets have
consistently outperformed the U.S. stock market. Adding foreign stocks to a
domestic portfolio can help reduce risk and lower portfolio volatility because
world markets do not move in sync. From time to time, the LifeGoal Portfolios
might point out these opportunities and the differences that exist through
investing in overseas countries in marketing materials that reference underlying
Nations Funds.
Yield Calculations
The yield of the Primary Shares and Investor Shares of the LifeGoal
Portfolios is a measure of the net investment income per share (as defined)
earned over a 30-day period expressed as a percentage of the maximum offering
price of a share of such classes at the end of the period. Yield figures are
determined by dividing the net investment income per share earned during the
specified 30-day period by the maximum offering price per share on the last day
of the period, according to the following formula:
Yield = 2[(a-b + 1)6 1]
---------------
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = average daily number of shares outstanding during
the period that were entitled to receive dividends
d = maximum offering price per share on the last day of
the period
For purposes of yield quotation, income is calculated in accordance
with standardized methods applicable to all stock and bond mutual funds. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gain and loss are
excluded from the calculation.
Income calculated for the purposes of calculating a LifeGoal
Portfolio's yield differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for a LifeGoal
Portfolio may differ from the rate of distributions a LifeGoal Portfolio paid
over the same period or the rate of income reported in the LifeGoal Portfolios'
financial statements.
Total Return Calculations
Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Portfolio. The LifeGoal Portfolios' average annual
and cumulative total return figures are computed in accordance with the
standardized methods prescribed by the SEC.
Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period
75
<PAGE>
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = (ERV-P) 100
-----------
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
For the year ended March 31, 1999, and since the Portfolios'
inception, the average annual total return for the LifeGoal Portfolios was as
follows:
Note: Earliest inception date for the LifeGoal Portfolios is October 15, 1996
and therefore five and ten year numbers are not available.
Average Annual Returns
----------------------
1 Year
(as of Since
3/31/2000) Inception
Including Including
LifeGoal Portfolio/Class Sales Charges Sales Charges
------------- -------------
a) Growth Portfolio
Primary A Shares
Primary B Shares
Investor A Shares
Investor B Shares
Investor C Shares
b) Balanced Growth Portfolio
Primary A Shares
Primary B Shares
Investor A Shares
Investor B Shares
Investor C Shares
76
<PAGE>
1 Year
(as of Since
3/31/2000) Inception
Including Including
LifeGoal Portfolio/Class Sales Charges Sales Charges
------------- -------------
c) Income and Growth Portfolio
Primary A Shares
Investor A Shares
Investor B Shares
Investor C Shares
For the period ended March 31, 2000, the aggregate total return for each
LifeGoal Portfolio of the Company was:
Note: Earliest inception date for the LifeGoal Portfolios is October 15, 1996
and therefore five and ten year numbers are not available.
<TABLE>
<CAPTION>
Inception Through Inception Through
3/31/2000 Without Sales 3/31/2000 Including Sales
----------------------- -------------------------
Charges Charges
------- -------
<S> <C> <C>
d) Growth Portfolio
Primary A Shares
Primary B Shares
Investor A Shares
Investor B Shares
Investor C Shares
e) Balanced Growth Portfolio
Primary A Shares
Primary B Shares
Investor A Shares
Investor B Shares
Investor C Shares
f) Income and Growth Portfolio
Primary A Shares
Investor A Shares
Investor B Shares
Investor C Shares
</TABLE>
The Primary Shares and Investor Shares of the LifeGoal Portfolios also
may quote their distribution rates, which express the historical amount of
income dividends paid to their shareholders during a three-month period as a
percentage of the maximum offering price per share on the last day of such
period.
The performance figures of the LifeGoal Portfolios as described above
will vary from time to time depending upon market and economic conditions, the
composition of their portfolios and operating expenses. These factors should be
considered when comparing the performance figures of the LifeGoal Portfolios
with those of other investment companies and investment vehicles.
The LifeGoal Portfolios may quote information obtained from the
Investment Company Institute, national financial publications, trade journals
and other industry sources in its advertising and sales literature. In addition,
the LifeGoal Portfolios may compare the performance and yield of a class or
series of shares to those of other mutual funds with similar investment
objectives and to other relevant indices or to rankings prepared by independent
77
<PAGE>
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance and yield of a class
of shares in a LifeGoal Portfolio may be compared to data prepared by Lipper
Analytical Services, Inc. Performance and yield data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
Journal, and The New York Times, or in publications of a local or regional
nature, also may be used in comparing the performance of a class of shares in a
LifeGoal Portfolio.
78
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard & Poor's
Corporation ("S&P") for corporate and municipal bonds. The first four ratings
denote investment grade securities.
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in
a small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than
for those in higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB represents the lowest degree of speculation and B a higher degree
of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories. The following summarizes the
highest six ratings used by Moody's Investors Service, Inc. ("Moody's") for
corporate and municipal bonds. The first four denote investment grade
securities.
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
A-1
<PAGE>
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and thereby not as well safeguarded during both good times
and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bond which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small. Moody's applies numerical modifiers (1, 2 and 3)
with respect to corporate bonds rated Aa through B. The modifier 1
indicates that the bond being rated ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1 or Baa1, respectively. The following summarizes the
highest four ratings used by Duff & Phelps Credit Rating Co. ("D&P")
for bonds, each of which denotes that the securities are investment
grade.
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly
more than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB - Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may modified by the addition of a plus or minus sign to show relative
standing within these major categories. The following summarizes the highest
four ratings used by Fitch Investors Service, Inc. ("Fitch") for bonds, each of
which denotes that the securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
A-2
<PAGE>
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2, and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of LifeGoal Portfolios, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes that the securities are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned the
F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
A-3
<PAGE>
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest in
a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used by IBCA
Limited and its affiliate, IBCA Inc. (collectively, "IBCA"):
A-4
<PAGE>
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase investment
risk significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic
or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A-1+ Where issues possess a particularly strong credit feature.
A-1 Obligations supported by the highest capacity for timely
repayment.
A-2 Obligations supported by a good capacity for timely
repayment.
A-5
<PAGE>
NATIONS LIFEGOAL FUNDS, INC.
ONE BANK OF AMERICA PLAZA
33rd Floor
Charlotte, NC 28255
1-800-626-2275
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits
All references to the "Registration Statement" in the following
list of Exhibits refer to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-09703; 811-07745)
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(a) Articles of Incorporation:
---------------------- ---------------------------------------------------------
(a)(1) Amended and Restated Articles of Incorporation dated June
4, 1997, incorporated by reference to Post-Effective
Amendment No. 10, filed March 7, 2000.
(a)(2) Articles of Amendment dated October 15, 1996,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(b) Bylaws:
(b)(1) Bylaws dated July 11, 1996, last amended May 26, 1999,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(c) Instruments Defining Rights of Securities Holders:
Not Applicable
---------------------- ---------------------------------------------------------
(d) Investment Advisory Contracts:
(d)(1) Investment Advisory Agreement between Banc of America
Advisors, Inc. (formerly NationsBanc Advisors, Inc.)
("BAAI") and Nations LifeGoal Funds, Inc. ("Registrant")
dated October 15, 1996, incorporated by reference to
Post-Effective Amendment No. 10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
C-1
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(d)(2) Sub-Advisory Agreement among BAAI, Banc of America
Capital Management, Inc. (formerly TradeStreet Investment
Associates, Inc.) ("BACAP") and the Registrant dated
October 15, 1996, incorporated by reference to
Post-Effective Amendment No. 10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(e) Underwriting Contract:
(e)(1) Distribution Agreement between the Registrant and
Stephens Inc. ("Stephens") dated October 15, 1996,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(f) Bonus or Profit Sharing Contracts:
Not Applicable
---------------------- ---------------------------------------------------------
(g) Custodian Agreement:
(g)(1) Custody Agreement between the Registrant and Bank of
America, N.A. (formerly NationsBank of Texas, N.A.)
("Bank of America") dated October 15, 1996, incorporated
by reference to Post-Effective Amendment No. 10, filed
March 7, 2000.
---------------------- ---------------------------------------------------------
(h) Other Material Contracts:
(h)(1) Co-Administration Agreement among the Registrant,
Stephens and BAAI dated December 1, 1998, incorporated by
reference to Post-Effective Amendment No. 10, filed March
7, 2000.
(h)(2) Sub-Administration Agreement among the Registrant, The
Bank of New York ("BNY") and BAAI dated December 1, 1998,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
(h)(3) Transfer Agency and Services Agreement between PFPC Inc.
(formerly First Data Investor Services Group, Inc.)
("PFPC") and the Nations Funds family dated June 1, 1995,
Schedule G dated February 14, 2000, incorporated by
reference to Post-Effective Amendment No. 10, filed March
7, 2000.
---------------------- ---------------------------------------------------------
C-2
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(h)(4) Adoption Agreement and Amendment to Transfer Agency and
Services Agreement dated October 15, 1996, incorporated
by reference to Post-Effective Amendment No. 10, filed
March 7, 2000.
(h)(5) Amendment to Transfer Agency and Services Agreement dated
January 1, 1999, incorporated by reference to
Post-Effective Amendment No. 10, filed March 7, 2000.
(h)(6) Sub-Transfer Agency Agreement between PFPC and Bank of
America dated September 11, 1995, Schedule A dated
February 14, 2000, incorporated by reference to
Post-Effective Amendment No. 10, filed March 7, 2000.
(h)(7) Shareholder Servicing Plan relating to Investor B Shares,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
(h)(8) Shareholder Servicing Plan relating to Investor C Shares,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(i) Legal Opinion
Opinion and Consent of Counsel, filed herewith
---------------------- ---------------------------------------------------------
(j) Other Opinions
Consent of Independent Accountants
--PricewaterhouseCoopers LLP, filed herewith.
---------------------- ---------------------------------------------------------
(k) Omitted Financial Statements
Not Applicable
---------------------- ---------------------------------------------------------
(l) Initial Capital Agreements:
(l)(1) Investment Letter, incorporated by reference to
Pre-Effective Amendment No. 1, filed October 9, 1996.
---------------------- ---------------------------------------------------------
(m) Rule 12b-1 Plans:
(m)(1) Shareholder Administration Plan relating to Primary B
Shares, incorporated by reference to Post-Effective
Amendment No. 10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
C-3
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(m)(2) Shareholder Servicing and Distribution Plan relating to
Investor A Shares, incorporated by reference to
Post-Effective Amendment No. 10, filed March 7, 2000.
(m)(3) Distribution Plan relating to Investor B Shares,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
(m)(4) Distribution Plan relating to Investor C Shares,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(n) Financial Data Schedule:
Not Applicable
---------------------- ---------------------------------------------------------
(o) Rule 18f-3 Plan:
(o)(1) Rule 18f-3 Multi-Class Plan amended May 26, 1999,
incorporated by reference to Post-Effective Amendment No.
10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(p) Powers of Attorney for Edmund L. Benson, Charles B.
Walker, A. Max Walker, Thomas S. Word, Jr., William H.
Grigg, James Ermer, Thomas F. Keller, Carl E. Mundy, Jr.,
James B. Sommers, Cornelius J. Pings and William P.
Carmichael, incorporated by reference to Post-Effective
Amendment No. 10, filed March 7, 2000.
---------------------- ---------------------------------------------------------
ITEM 24. Persons Controlled by of Under Common Control with the Fund
No person is controlled by or under common control with the Registrant.
ITEM 25. Indemnification
The following paragraphs of Article VIII of the Registrant's Amended
and Restated Articles of Incorporation provide:
The Corporation shall indemnify (1) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (2) its other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such Bylaws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be
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<PAGE>
permitted by law. No amendment of these Articles of Incorporation of the
Corporation shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal. Nothing contained herein shall be construed to authorize the Corporation
to indemnify any Director or officer of the Corporation against any liability to
the Corporation or to any holders of securities of the Corporation to which he
is subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. Any
indemnification by the Corporation shall be consistent with the requirements of
law, including the Investment Company Act of 1940, as amended (the "1940 Act");
and
To the fullest extent permitted by Maryland statutory and decisional
law and the 1940 Act, as amended or interpreted, no Director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall be construed to
protect any Director or officer of the Corporation against any liability to
which such Director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment, modification or repeal of
this Article VIII shall adversely affect any right or protection of a Director
or officer that exists at the time of such amendment, modification or repeal.
Under the terms of Maryland Corporation Law and the Registrant's
Amended and Restated Articles of Incorporation and Bylaws provide for the
indemnification of the Registrant's directors and employees. Indemnification of
the Registrant's administrators, distributor, custodian, and transfer agents is
provided for, respectively, in the Registrant's:
1. Co-Administration Agreement with Stephens and BAAI;
2. Sub-Administration Agreement with BNY and BAAI;
3. Distribution Agreement with Stephens;
4. Custody Agreement with Bank of America;
5. Transfer Agency and Services Agreement with PFPC; and
6. Sub-Transfer Agency and Services Agreement with PFPC and Bank
of America.
Promptly after receipt by an indemnified party above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission to so notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to notify the indemnifying party of the
commencement thereof, the indemnifying party shall be
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<PAGE>
entitled to participate therein and, to the extent that it shall wish, to assume
the defense thereof, with counsel satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in such case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation.
The Registrant has obtained from a major insurance carrier a directors'
and officers' liability policy covering certain types of errors and omissions.
In no event will the Registrant indemnify any of its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his/her willful misfeasance, bad faith, gross negligence
in the performance of his/her duties, or by reason of his/her reckless disregard
of the duties involved in the conduct of his/her office or arising under his
agreement with the Registrant. The Registrant will comply with Rule 484 under
the Securities Act of 1933, as amended (the "1933 Act") and Release No. 11330
under the 1940 Act, in connection with any indemnification.
Insofar as indemnification for liability arising under the 1933 Act may
be permitted to directors, officers, and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission ("SEC")
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
ITEM 26. Business and Other Connections of the Investment Adviser
To the knowledge of the Registrant, none of the directors or officers
of BAAI, the adviser to the Registrant's portfolios, or BACAP, the investment
sub-adviser, except those set forth below, are or have been, at any time during
the past two calendar years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
officers also hold various positions with, and engage in business for, the
company that owns all the outstanding stock (other than directors' qualifying
shares) of BAAI or BACAP, respectively, or other subsidiaries of Bank of America
Corporation.
(a) BAAI performs investment advisory services for the Registrant and
certain other customers. BAAI is a wholly-owned subsidiary of Bank of America,
which in turn is a wholly-owned banking subsidiary of Bank of America
Corporation. Information with respect to each director and officer of the
investment adviser is
C-6
<PAGE>
incorporated by reference to Form ADV filed by BAAI with the SEC pursuant to the
Investment Advisers Act of 1940, as amended (the "Advisers Act") (file no.
801-49874).
(b) BACAP performs investment sub-advisory services for the Registrant
and certain other customers. BACAP is a wholly-owned subsidiary of Bank of
America Corporation. Information with respect to each director and officer of
the investment sub-adviser is incorporated by reference to Form ADV filed by
BACAP (formerly TradeStreet Investment Associates, Inc.) with the SEC pursuant
to the Advisers Act (file no. 801-50372).
ITEM 27. Principal Underwriters
(a) Stephens, distributor for the Registrant, does not presently act as
investment adviser for any other registered investment companies, but does act
as distributor for Nations Fund Trust, Nations Fund, Inc., Nations Reserves,
Nations Annuity Trust, Nations Funds Trust, Wells Fargo Trust, Wells Fargo
Variable Trust, and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust, Wells Fargo Core Trust, Nations Master
Investment Trust and Master Investment Portfolio, all of which are registered
open-end management investment companies, and has acted as principal underwriter
for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and the Managed Balanced
Target Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV filed by Stephens
with the SEC pursuant to the 1940 Act (file No. 501-15510).
(c) Not applicable.
ITEM 28. Location of Accounts and Records
(1) BAAI, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as investment adviser and
co-administrator).
(2) BACAP, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as investment sub-adviser).
(3) Stephens, 111 Center Street, Little Rock, AR 72201 (records
relating to its function as distributor and co-administrator).
(4) Bank of America, One Bank of America Plaza, Charlotte, NC
28255 (records relating to its function as custodian and
sub-transfer agent).
(5) PFPC, 400 Bellevue Parkway, Wilmington, DE 19809 (records
relating to its function as transfer agent).
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<PAGE>
(6) BNY, 100 Church Street, New York, NY 10286 (records relating
to its function as sub-administrator).
ITEM 29. Management Services
Not Applicable
ITEM 30. Undertakings
Not Applicable
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 28th day of July, 2000
NATIONS LIFEGOAL FUNDS, INC.
By: *
-------------------------------------------------
A. Max Walker
President and Chairman of the Board of Directors
By: /s/ Richard H. Blank, Jr.
--------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chairman July 28, 2000
---------------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and Secretary July 28, 2000
---------------------------------- (Principal Financial and Accounting Officer)
(Richard H. Blank, Jr.)
* Director July 28, 2000
----------------------------------
(Edmund L. Benson, III)
* Director July 28, 2000
----------------------------------
(James Ermer)
* Director July 28, 2000
----------------------------------
(William H. Grigg)
* Director July 28, 2000
----------------------------------
(Thomas F. Keller)
* Director July 28, 2000
----------------------------------
(Carl E. Mundy, Jr.)
* Director July 28, 2000
----------------------------------
(Cornelius J. Pings)
* Director July 28, 2000
----------------------------------
(Charles B. Walker)
* Director July 28, 2000
----------------------------------
(Thomas S. Word)
* Director July 28, 2000
----------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
----------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 28th day of July, 2000.
NATIONS LIFEGOAL FUNDS, INC.
By: *
------------------------------------------------------
A. Max Walker
President and Chairman of the Board of Directors
By:
------------------------------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chairman July 28, 2000
---------------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
Treasurer and July 28, 2000
---------------------------------- Secretary
(Richard H. Blank, Jr.) (Principal Financial and Accounting Officer)
* Director July 28, 2000
----------------------------------
(Edmund L. Benson, III)
* Director July 28, 2000
----------------------------------
(William P. Carmichael)
* Director July 28, 2000
----------------------------------
(James Ermer)
* Director July 28, 2000
----------------------------------
(William H. Grigg)
* Director July 28, 2000
----------------------------------
(Thomas F. Keller)
* Director July 28, 2000
----------------------------------
(Carl E. Mundy, Jr.)
* Director July 28, 2000
----------------------------------
(Cornelius J. Pings)
* Director July 28, 2000
----------------------------------
(Charles B. Walker)
* Director July 28, 2000
----------------------------------
(Thomas S. Word)
* Director July 28, 2000
----------------------------------
(James B. Sommers)
----------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
NATIONS LIFEGOAL FUNDS, INC.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
EX-99.23i Opinion and Consent of Counsel - Morrison & Foerster LLP
EX-99.23j Opinion of Independent Accountants - PricewaterhouseCoopers LLP
